The Impact of Deposit Insurance on European Depositor Behavior in a Banking Crisis

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Type and Duration

Netzwerkprojekt, April 2014 until April 2016

Coordinator

Chair in Business Administration, Banking and Financial Management

Main Research

Wealth Management

Field of Research

Banking and Finance

Description

The basic objective of this study is to test whether the monitoring activity of the European professional - defined as one with a meaningful level of financial knowledge - could be affected by variations in the deposit insurance system. This research intends to engage depositors who are professionals in the broader finance sector of European countries. We use a unique empirical methodology and this well-defined sample of professionals from each country in the Forum. The professionals will be asked to engage in an online exercise to determine if well-informed investors respond consistently to variations in deposit insurance design.

That deposit insurance reduces the perceived need of depositors to monitor their respective banks has been a long held assumption. However, in the extensive banking research prior to this study, there has been no reported evidence on how professional investors exposed to variations in the insurance may vary in their monitoring activity. The results of our study will provide important insight into the effects of increasing EU harmonization on depositor behavior on a country by country basis during a banking crisis.

This research approach is of particular interest as deposit insurance schemes have remained relatively heterogeneous - in terms of organization, administration, coverage and financing -- across member states since the introduction of the first European Deposit Guarantee Scheme (DGS) in 1994. Only recently, brought about by the financial crisis in 2008, has the EU pushed for new EU wide provision for DGSs with the most recent ones to be applied from July 2015 onwards. Our study proposes to quantify the potential for success by testing the level of convergence in depositor behavior across member states following the introduction of a revised DGS aiming for EU-wide harmonization.

Keywords

Behavioural Finance, European Banking Legislation, Behavior design

Project Coordinator

Project Leader

  • Chair in Business Administration, Banking and Financial Management