Private deposit insurance, deposit flows, bank lending, and moral hazard

Piotr Danisewicz, Chun Hei Lee and Klaus Schaeck

Journal of Financial Intermediation, 2022, vol. 52, issue C

Abstract: We examine the role of private unlimited deposit insurance as a complement to federal deposit insurance for deposit flows, bank lending, and moral hazard during a crisis. We find that banks whose deposits are federally and privately fully insured obtain more deposits and expand lending, in contrast to banks whose deposits are only federally insured. We also document that privately insured banks remain prudent in the loan origination process during the subprime crisis. Our results offer novel insights into depositor and bank behavior in the presence of multiple deposit insurance schemes with differential design features. They also illustrate how private sector solutions incentivize prudent bank behavior to strengthen the financial safety net.

Keywords: Private unlimited deposit insurance; Deposit flows; Lending; Financial crisis (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:52:y:2022:i:c:s1042957322000201

DOI: 10.1016/j.jfi.2022.100967

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