Shizuka Sekita () (Graduate School of Economics, Osaka University)
Abstract
This paper tests for the presence of depositors' discipline by households and examines the impact of revisions of the deposit insurance system, changes in the financial condition of the banking sector as a whole, and household characteristics on the extent of depositors' discipline using households' subjective evaluation of the financial condition of the banks with which they do business. I find evidence of the presence of depositors' discipline by households even during periods when bank deposits were fully protected by the deposit insurance system. The extent of depositors' discipline by households increased even before the abolition of the full protection of term deposits because households began making adjustments in anticipation of the proposed change, but only large depositors (households holding bank deposits of over 10 million yen) increased the extent of depositors' discipline at that time. In addition, the revision of the deposit insurance system that extended the full protection of ordinary deposits for another two years and fully protected payment and settlement deposits permanently decreased depositors' discipline of all households, regardless of how much bank deposits they hold. Moreover, various household characteristics affect the extent of depositors' discipline, the most important of which is awareness of the deposit insurance system (overall financial knowledge). I find that lack of awareness of the deposit insurance system (lack of overall financial knowledge) weakens the extent of depositors' discipline by a significant amount.
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Publisher Info
Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number
05-10.
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