Fi­nan­ce Se­mi­nar with José-Luis Pey­dro

Please join us for a Finance Seminar with José-Luis Peydro, LUISS & EIEF.                                                                                                                  

José-Luis will present: Distortive Effects of Deposit Insurance: Administrative Evidence from Deposit and Credit Registers

Abstract:
We study how increasing deposit insurance coverage during crises shape deposits and lending.  We exploit a reform of Denmark’s deposit insurance during the Global Financial Crisis and administrative datasets, including the universe of deposits. Increasing insurance coverage prevents weaker banks from further losing large (previously uninsured) deposits during crises, enabling continued credit supply.  However, deposit insurance facilitates reallocation of large deposits from stronger to weaker banks, and increasing credit supply by weaker banks to ex-ante riskier firms with higher ex-post defaults. Consistently, banks that gained most deposits under increasing insurance are themselves more likely to fail, particularly ex-ante weaker banks.