Deposit Insurance and Banks' Deposit Rates: Evidence from the 2009 EU Policy

35 Pages Posted: 31 Aug 2018 Last revised: 25 Jun 2019

See all articles by Matteo Gatti

Matteo Gatti

European University Institute - Economics Department (ECO)

Tommaso Oliviero

CSEF - University of Naples Federico II - Department of Economic and Statistical Sciences; CSEF; CefES; MoFiR

Date Written: August 18, 2018

Abstract

In early 2009 the EU increased the minimum deposit insurance limit from €20,000 to €100,000 per bank account. Italy was the only country with a limit already set to €103,291 from 1994. To evaluate the impact of the new directive we run a diff-in-diff analysis and compare the bank-size weighted average deposit interest rates of the Eurozone countries with the Italian ones. We find that the increase of deposit insurance leads to a decrease of deposit rates in European countries relative to Italy between 0.3 and 0.7 percentage points. The drop in deposit rates is confirmed by a diff-in-diff analysis run at bank level after implementing a propensity score matching of Italian banks with European ones. We finally show that this effect mainly come from riskier banks confirming that deposit insurance negatively affects deposit rates by reducing the depositors' required risk-premium.

Keywords: Deposit Insurance, Bank Deposit Rates, Policy Evaluation

JEL Classification: G21, G28

Suggested Citation

Gatti, Matteo and Oliviero, Tommaso, Deposit Insurance and Banks' Deposit Rates: Evidence from the 2009 EU Policy (August 18, 2018). Available at SSRN: https://ssrn.com/abstract=3237388 or http://dx.doi.org/10.2139/ssrn.3237388

Matteo Gatti

European University Institute - Economics Department (ECO) ( email )

Villa La Fonte
Via delle Fontanelle 18
Fiesole FI, 50014
Italy

Tommaso Oliviero (Contact Author)

CSEF - University of Naples Federico II - Department of Economic and Statistical Sciences ( email )

Via Cintia 26
Napoli
Italy

CSEF ( email )

Via Cintia
Complesso Monte S. Angelo
Napoli, Naples 80126
Italy

CefES ( email )

U6 Building
Viale Piero e Alberto Pirelli, 22
Milano, 20126
Italy

MoFiR ( email )

Piazzale Martelli, 8
Ancona, 60100
Italy

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