Deposit Insurance: An Empirical Study of Private Investors' Knowledge and Perception

Abstract

Theoretical studies about the interrelation of bank runs and deposit insurance assume that depositors are perfectly informed about deposit insurance and its main features. This assumption is commonly made, but was hardly ever checked empirically. Taking German depositors as an example, we investigate the knowledge about existing deposit insurance systems and how the insurance levels of different banks are perceived. By doing so, this study is one of the very few exceptions which address the public awareness of deposit insurance, and it may be the only one which examines how depositors perceive their deposits' security. Using survey data of 756 private investors, our results indicate a lack of knowledge about depositor protection but much confidence in it. Although practically all personal deposits of the banks in the survey are fully secured, private depositors perceive differences in the safety level across banks. These differences can be partly explained by the banks' reputations.