Deposit Insurance in Times of Crises: Safe Haven or Regulatory Arbitrage?

Abstract

This paper examines the impact of deposit insurance (DI) schemes on bilateral cross-border deposits. Our results suggest that not only the existence of explicit DI, but also DI design features, have an impact on cross-border deposits. Relative differences between reporting and depositor countries also matter. In times of crises, depositors rely more on DI in general, but DI acts primarily as a “Safe Haven” rather than enabling “Regulatory Arbitrage”. During the global financial crisis of 2008/09 the emergency actions of bank country governments, which supply and maintain these safe havens, have led to substantial relocations of cross-border deposits.