Deposit Insurance and Depositor Behavior: Evidence from Colombia

17 February 2022
Economic theme: Public Finance
Event type: Webinar
JEL Code: B26, G21
Event date: 7 March 2022, 4:00pm
to 7 March 2022, 5:00pm
Location: Online

Abstract: We exploit an unexpected increase in the Colombian insurance threshold to investigate how depositors respond to higher deposit insurance. A monthly depositor-level panel shows that both the level and growth of deposits rise with higher coverage. This increment is driven by individuals who were fully and nearly-fully insured before the policy. A survey of bank customers indicates that higher bank deposits were replenished by reducing cash and liquidating other assets. We quantify an elasticity of deposit growth to deposit insurance of 0.4%, and find a similar figure in the United States by leveraging the 2008 increase in deposit insurance.

About the presenter: Nicola Limodio is an Assistant Professor of Finance at Bocconi University and CEPR Research Affiliate. His research focuses on financial economics, development economics and political economy. His papers have appeared in Review of Economic Studies, Economic Journal and American Economic Review: Insights.

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