The Run for Safety: Financial Fragility and Deposit Insurance
Niels Johannesen and
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Rajkamal Iyer: MIT Sloan, Cambridge
Thais Jensen: Department of Economics, University of Copenhagen
Adam Sheridan: Department of Economics, University of Copenhagen
EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics
We study a run on uninsured deposits in Danish banks triggered by a reform that limited deposit insurance coverage. Using a unique dataset with information about all individual accounts in Danish banks, we show that the reform caused a 50% decrease in deposits above the insurance limit in non-systemic banks, but a much smaller decrease in systemic banks which experienced less withdrawals from uninsured accounts, but also more openings of new uninsured accounts. Our results highlight the significant risks from a differential reallocation of uninsured deposits across banks and, in turn, the need for high insurance limits during a crisis.
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Persistent link: https://EconPapers.repec.org/RePEc:kud:epruwp:1602
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