Nicola Limodio (Bocconi University) - Household Portfolio and Deposit Insurance: Implications for the Supply of Safe Assets

BOFIT-seminarier

BOFIT Seminar - Nicola Limodio (Bocconi University) - Household Portfolio and Deposit Insurance: Implications for the Supply of Safe Assets

Co-authors: Pulak Ghosh (Indian Institute of Management, Bangalore) and Nishant Vats (Washington University in St. Louis)

Abstract
We investigate how deposit insurance shapes household portfolios by altering safe, liquid asset supply. Theoretically, limited deposit insurance creates a kinked capital allocation line, generating bunching at the threshold and increased demand for quasi-safe equity substitutes. Exploiting India’s deposit insurance expansion with granular depositor-level data linking deposits and equity, we employ bunching-in-differences design. Bunchers increase deposits between 3.6-5.1% by liquidating equity, particularly state-owned enterprises held as safe substitutes, creating transient price effects. The buncher share serves as sufficient statistic for depositor-implied bank failure risk. Depositor welfare rises by at least 0.04% from expanded insurance, even accounting for bank moral hazard.

Online BOFIT seminars are open to all researchers interested in the subjects covered. The seminar will be recorded and the recording will be shared only with registered participants. Those wishing to attend a seminar are kindly asked to register in advance, by filling in the Online Registration Form.

The registration for the seminar is open until 9:00 am the day of the seminar. You will receive a link to join the seminar by email at the latest one hour before the seminar is scheduled to begin.