Deposit Insurance Credibility: Revealed Polarized Perceptions

Abstract

Using customer data from a large fintech company offering “insured” time deposits from various European banks, we document considerable heterogeneity in offered interest rates for the same maturity across and even within countries for such a simple product. We find that 11% of investors trust deposit insurance and regard these products as riskless – the Believers – and thus always go for the highest yield, but 67% – the Doubters – never do. The interest rate is not the most important decision variable for Doubters. Further, despite no recorded defaults, the beliefs of Doubters prove more persistent than those of Believers.

Presented by Utpal Bhattacharya