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

38 Pages Posted: 13 Sep 2019

See all articles by Matteo Gatti

Matteo Gatti

European University Institute - Economics Department (ECO)

Tommaso Oliviero

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

Date Written: August 19, 2019

Abstract

Deposit insurance is one of the main pillars of banking regulation meant to safeguard financial stability. In early 2009, the EU increased the minimum deposit insurance limit from e20, 000 to e100, 000 per bank account with the goal of achieving greater stability in the financial markets. Italy had already set a limit of e103, 291 in 1994. We evaluate the impact of the new directive on the banks’ average interest rate on customer deposits by comparing banks in the Eurozone countries to those in Italy, before and after the policy change. The comparability between the two groups of banks is improved by means of a propensity score matching. We find that the increase in the deposit insurance limit led to a significant decrease in the cost of funding per unit of customer deposit and that the effect is stronger for riskier banks, suggesting that the policy reduced the risk premium demanded by depositors.

Keywords: Deposit Insurance, Average Deposit Interest Rate, Cost of Deposit Funding

JEL Classification: G21, G28

Suggested Citation

Gatti, Matteo and Oliviero, Tommaso, Deposit Insurance and Banks’ Deposit Rates: Evidence from the 2009 EU Policy Change (August 19, 2019). University of Milan Bicocca Department of Economics, Management and Statistics Working Paper No. 419, Available at SSRN: https://ssrn.com/abstract=3452664 or http://dx.doi.org/10.2139/ssrn.3452664

Matteo Gatti

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

Villa La Fonte
Via delle Fontanelle 18
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Italy

Tommaso Oliviero (Contact Author)

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 )

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Viale Piero e Alberto Pirelli, 22
Milano, 20126
Italy

MoFiR ( email )

Piazzale Martelli, 8
Ancona, 60100
Italy

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