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Deposit Insurance in Times of Crises: Safe Haven or Regulatory Arbitrage

This discussion focuses on the research paper "Deposit Insurance in Times of Crises: Safe Haven or Regulatory Arbitrage" by Jean Roy. It highlights the strengths of the paper, raises questions about the sample and data, methodology, and results, and discusses the implications for further research and policy.

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Deposit Insurance in Times of Crises: Safe Haven or Regulatory Arbitrage

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Presentation Transcript

  1. Discussion of «DepositInsurance in Times of Crises: SafeHeaven or RegulatoryArbitrage» Jean Roy, HEC-Montreal

  2. Content • Strengths • Questions • Conclusion

  3. 1. Strengths • A relevant research topic: cross-border deposits • Excellent knowledge of the literature • Very extensive data base in terms of the numbers of countries, number of variables and number of years. • Sophisticated econometric work: unbalanced panel data, sensitivity analysis of the impact of various design characteristics of DI, various robustness checks. • Interesting results on the behavior of depositors • Written in a very clear and concise style

  4. 2. Questions on the sample • P.9 «Our sample covers 22 bank countries11 and 131 depositor countries from 1998 to 2011 but not all bilateral cross border deposits Xijt are available for all years.» • What were the criteria to select a country as a bank country? • Are these countries included or not in the depositor group? If not, why not? • Why is Canada not included in the bank countries group, while Australia is? • Why is Macau in the bank countries group while most major Asian financial centers are not? • What are the 131 depositor countries?

  5. 2. Questions on the data • Figure 1 and 2 show the distribution of cross-border deposits over time and acrossbank countries, stillthere are some questions: • Whatis the marketshare of the 4 most important bank countries (UK, Germany, Switzerland and United States)? • Whatis the distribution of cross-border depositsacrossdepositor countries? • Is there concentration with regards to depositor countries? • Are thereoutliers, whichcould affect the results?

  6. 2. Question on the methodology As the DI variables do not seem very correlated, as shown in Table A9, why is there no regression where they would all be included at the same time?

  7. 2. Questions on the results T1 • To whatextentis the gravity model important in thisresearch? • How to explain the peculiar pattern of adjusted R-squared? • Gravitymodels: .553 and .583 • All othermodels: .946 to .952 • What part of the variance isexplained by the DI variables, the control variables and the fixedeffects variables?

  8. 2. Questions on the results T1-T2, T3-T4 • Tables 2 and 4 differ from Table 1 and 3 respectively by the fact that variable Dit is replaced by variable Dijt, which should provide different information. • However, we observe that the adjusted R-squared of Table 1 and 2 and Table 3 and 4 are essentially the same. • This begs the question: Are the information sets provided by the explanatory variables in Table 1 and 2 and Table 3 and 4 really different?

  9. Adjusted R-squaredfrom T1, T2, T3, T4

  10. 2. Questions on the results T5 • The results of Table 5 show that emergency actions (increases in insured deposits protection) during a crisis do increase cross border deposits. • Is there an endogeneity issue? Could emergency mesures be inluenced by the behavior of cross-border deposits? • What are the costs and benefits for the DI of the bank country of increased cross-border deposits? • The influx of foreign deposits may help the home banks, but if these fail the exposure of the DI will be greater.

  11. 2. Questions for furtherresearch • What would be the performance of the model out of sample, ie as a predictive model? • Generally, what are the effects of cross-border deposits on deposit insurers?

  12. 2. Questions on the conclusion • Last sentence of the conclusion p.19 : • «Likewise, ourfindings, documenting a novel pattern of save (sic) haven and regulatory arbitrage drivenbehavior by depositors, also stress the need for a coordinatedregulatorystrategywith respect to depositinsuranceschemes». • What are the hiddenassumptions to go from a descriptive study to a normative recommendation? • Are cross-border deposits «bad» and to beavoided? • Are they not the realization of depositor discipline on banks and depositinsurers? • Is not regulatorycompetitionalso a good thing?

  13. 3. Conclusion • Cross-bordersdeposits are a veryinteresting and relevant topic for depositinsurers. • The paperrepresents a considerableamount of workwhich must beacknowledged. • Stillsome questions arise bothwith regard to the methodology and with regard to the implications of the results for policy.

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