Sümeyra Atmaca, Karolin Kirschenmann, Steven Ongena, Koen Schoors, 16 January 2021

Deposit insurance has the potential to preserve and even restore financial stability in times of crises. This column uses evidence from more than 300,000 Belgian depositors of a large European bank during 2008 and 2009 to examine whether increasing deposit insurance coverage supported financial stability during the global financial crisis. It finds that the increase in deposit insurance coverage together with the nationalisation of a bank at the height of the financial crisis in the autumn of 2008 was effective in calming depositors. The effect of increased deposit insurance kicks in most strongly once the bank is reprivatised, and close bank-customer relationships and trust in the government reinforce the effect.

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