Discussion by bent vale 2017 Biennial iadi research conference Views and conclusions are the discussants and cannot be attributed to Norges Bank Main content of the paper ID: 629903
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Slide1
Deposit insurance in times of crises: safe haven or regulatory arbitrage
Discussion by bent vale2017 Biennial iadi research conference
Views
and
conclusions
are
the
discussants
’
and
cannot
be
attributed
to Norges BankSlide2
Main content of the paper
2How bilateral cross-border deposits are affected by existence and design of DI schemes.
Analyse thoroughly constructed data sets that have not been used so far.
Use a panel data model with bilateral cross border deposits as LHS variable and DI features as well as controls on the RHS.
Try to distinguish between safe haven and regulatory arbitrage. Slide3
Main content of the paper
3FindingsIn general: existence of DI, DI coverage, power of DI scheme and DI moral hazard mitigation contribute positively to bilateral cross border deposits.
Both in Safe Haven model and Regulatory Arbitrage model.
During crisis in depositor home country:
Safe Haven model gives similar results as in stable times.
Regulatory Arbitrage model gives less similar results.
Paper concludes: in crisis DI primarily creates Safe Havens, to a less degree is there Regulatory Arbitrage. Slide4
Main comment
4The title of the paper: Safe Haven or Regulatory Arbitrage
Does a distinction between Safe Haven (SH) and Regulatory Arbitrage (RA) make sense?Slide5
Main comment
5Paper’s distinction between SH and RASafe Haven:Depositor in country A when deciding how much to deposit in country B and C, only considers DI features of B and C, but not A.
Regulatory Arbitrage:
Depositor in country A when deciding how much to deposit in country B and C, considers DI features of B and C relative to A.
Why this distinction?
Depositors should obviously consider DI in their own country when deciding on cross border deposits.
Hence, RA model is the relevant one. Slide6
Main comment
6Paper’s distinction between SH and RA, recommendationDrop the SH model and focus on RA model, i.e. Model 2
Skip the attempt at distinguishing between Safe Haven and Regulatory Arbitrage.Slide7
Other comments
7DI power to intervene: More important to uninsured depositors
But Supervisory Authority’s power and competence should matter at least as much as DI’s power.
Moral hazard mitigation:
MH an individual bank phenomenon
Risk based or flat fee matters more than collective bank funding or collective tax payer funding of DI. Slide8
Conclusion
8An interesting paper, showing how DI design matters for depositors.Nice combination of data
But, labelling models as Safe Haven or Regulatory Arbitrage should be dropped.