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Deposit Insurance and Depositor Behavior: Evidence from Colombia

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  • Nicolás de Roux
  • Nicola Limodio

Abstract

This paper studies the effect of deposit insurance on depositor behavior. Our theoretical framework integrates insights from public and financial economics and predicts that (1) deposit insurance induces bunching at the threshold in the deposit distribution and (2) an increase in the insurance threshold promotes deposit growth, particularly higher for individuals bunching at the initial limit. We exploit a large and unexpected increase in the Colombian insurance together with monthly depositor-level records from a major bank to test these predictions. We validate the existence of bunching in deposits and quantify the heterogeneous effect of deposit insurance on individual deposit growth.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Nicolás de Roux & Nicola Limodio, 2023. "Deposit Insurance and Depositor Behavior: Evidence from Colombia," The Review of Financial Studies, Society for Financial Studies, vol. 36(7), pages 2721-2755.
    • Handle: RePEc:oup:rfinst:v:36:y:2023:i:7:p:2721-2755.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhac092
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    Cited by:

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    2. van der Kwaak, Christiaan & Madeira, João & Palma, Nuno, 2023. "The long-run effects of risk: an equilibrium approach," European Economic Review, Elsevier, vol. 153(C).
    3. Quintero-V, Juan C., 2023. "Deposit insurance and market discipline," Journal of Financial Stability, Elsevier, vol. 64(C).
    4. Nicola Limodio & Francesco Strobbe, 2023. "Liquidity Requirements, Bank Deposits and Financial Development," Economica, London School of Economics and Political Science, vol. 90(357), pages 240-270, January.

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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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