Consumer Perception of Deposit Insurance: Little Awareness, Limited Effectiveness?

Abstract:     
This paper provides unique survey evidence on consumer awareness about deposit insurance. We find that knowledge on the eligibility for deposit insurance is limited, in particular when it concerns small banks. In addition, consumers generally expect an associated payback time that well exceeds the time it has taken to pay back depositors in the past. Moreover, they believe repayment is more likely and faster for large, systemic banks. This confirms that households’ awareness of the coverage and operations of deposit insurance are suboptimal. We also find that knowledge about the scheme is correlated with the probability to stay under the maximum guaranteed amount. Trust in the deposit insurance system however has only a marginal effect on the observed deposit behavior in “normal” and “crisis” times. Moreover, respondents have a strong preference for a deposit insurance scheme with a high coverage rate and are willing to accept a long payback time in return. All in all, limited knowledge about deposit insurance might partly explain why its effectiveness in reality is at odds with the effectiveness that theory predicts.

Number of Pages in PDF File: 28

Keywords: Information, trust, banking, deposit insurance, subjective expectations

JEL Classification: D83, D84, G21, G28

working papers series