The Travels of a Bank Deposit in Turbulent Times: The Importance of Deposit Insurance Design for Cross‐border Deposits

Abstract

We examine the impact of the existence on an explicit deposit insurance (DI) scheme and its design features on bilateral cross‐border deposits (CBD) in a gravity model setting. We find that both the absolute quality of a country's DI and its relative quality vis‐à‐vis other countries' DI generally affect depositor behavior. However, during systemic banking crises, cross‐border depositors primarily seek countries with the best DI schemes. Similarly, during the 2008–2009 great financial crisis, the emergency actions taken by the governments, which supply and maintain these safe havens, have led to substantial relocations of CBD. (JEL F34, G18)

Introduction to the Symposium on Contemporary Banking Research: The Use of Fixed Effects to Disentangle Loan Demand From Loan Supply

“…Fatica, Heynderickx, and Pagano () apply bank‐group, year and country‐year fixed effects in their assessment of the impact of corporate tax reforms on debt and equity choices. Qi, Kleimeier, and Sander () use country‐pair and year fixed effects when estimating the effect of deposit insurance on bilateral cross‐border deposits. Based on data from a single retail bank, Brown, Kirschenmann, and Spycher () include branch and time fixed effects when accounting for numeracy differentials across loan officers.…”