N°26-40: Insurance and Assurance: Government Interventions and Depositor Behavior in Crisis

We examine how different forms of government intervention-explicit deposit insurance, implicit guarantees from nationalization, and assurance effects from re-privatizationshape depositor behavior during a banking crisis. Using proprietary monthly accountlevel data, we show that depositors respond to formal insurance limits even in an environment of broad state support, but adjust only partially. Stabilization is markedly stronger after the takeover by a financially strong private bank than during state ownership, despite unchanged statutory coverage. These patterns are inconsistent with a strong bailout-expectations view in which explicit insurance is largely irrelevant and instead point to credibility as a key determinant of depositor behavior. We further show that political trust amplifies the effectiveness of government guarantees. Overall, our findings highlight that the form and credibility of government backstops, rather than coverage levels alone, are central to funding stability during crises.