Flight from safety: How a change to the deposit insurance limit affects households' portfolio allocation

Evren Damar, Reint Gropp () and Adi Mordel

No 19/2019, IWH Discussion Papers from Halle Institute for Economic Research (IWH)

Abstract: We study how an increase to the deposit insurance limit affects households' portfolio allocation by exogenously reducing uninsured deposit balances. Using unique data that identifies insured versus uninsured deposits, along with detailed information on Canadian households' portfolio holdings, we show that households respond by drawing down deposits and shifting towards mutual funds and stocks. These outflows amount to 2.8% of outstanding bank deposits. The empirical evidence, consistent with a standard portfolio choice model that is modified to accommodate uninsured deposits, indicates that more generous deposit insurance coverage results in nontrivial adjustments to household portfolios.

Keywords: deposit insurance; banking; households; regulation (search for similar items in EconPapers)
JEL-codes: D14 G21 G28 L51 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-ban and nep-ias
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https://www.econstor.eu/bitstream/10419/202030/1/1671896734.pdf (application/pdf)

Related works:
Working Paper: Flight from Safety: How a Change to the Deposit Insurance Limit Affects Households’ Portfolio Allocation (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwhdps:192019

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