Fear, Deposit Insurance Schemes, and Deposit Reallocation in the German Banking System

37 Pages Posted: 13 Apr 2019

See all articles by Falko Fecht

Falko Fecht

Deutsche Bundesbank; Frankfurt School of Finance & Management

Stefan Thum

Deutsche Bundesbank

Patrick Weber

Deutsche Bundesbank

Multiple version iconThere are 2 versions of this paper

Date Written: 2019

Abstract

Recent regulatory initiatives such as the European Deposit Insurance Scheme propose a change in the coverage and backing of deposit insurances. An assessment of these proposals requires a thorough understanding of what drives depositors' withdrawal decisions. We show that Google searches for 'deposit insurance' and related strings reflect depositors' fears and help to predict deposit shifts in the German banking sector from private banks to fully guaranteed public banks. After the introduction of blanket state guarantees for all deposits in the German banking system this fear driven reallocation of deposits stopped. Our findings highlight that a heterogeneous insurance of deposits can lead to a sudden, fear induced reallocation of deposits endangering the stability of the banking sector even in absence of redenomination risks.

Keywords: Depositor expectations, Google, Deposit insurance, Competition for depositors, Bank runs

JEL Classification: G01, G10, G20

Suggested Citation

Fecht, Falko and Thum, Stefan and Weber, Patrick, Fear, Deposit Insurance Schemes, and Deposit Reallocation in the German Banking System (2019). Deutsche Bundesbank Discussion Paper No. 12/2019, Available at SSRN: https://ssrn.com/abstract=3391551 or http://dx.doi.org/10.2139/ssrn.3391551

Falko Fecht (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany
+4969956632312 (Phone)

HOME PAGE: http://https://www.bundesbank.de/en/falko-fecht

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Stefan Thum

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Patrick Weber

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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