To stay or go? Consumer bank switching behaviour after government interventions

We analyse whether and how individual savings and current account holders respond to government interventions, due to the financial crisis, at banks. We employ a difference-in-difference analysis and distinguish between a nationalisation and a capital injection. We show that current account holders of the nationalised bank are more likely to switch away shortly after the bail-out. Second, we find heterogeneity in consumer responses to government interventions, depending on the type of intervention and banking product. Consumers who trust the government are less likely to switch their current account from a nationalised bank. Furthermore, risk averse current account holders at a bank that received a capital injection are more likely to switch, which suggests the presence of a wake-up call effect. Finally, we report that financial literate current account holders are more likely to switch away after a nationalisation, and financial literate savings account holders are more likely to switch away from the recapitalised bank. The latter finding also indicates that risk awareness increased.