Deposit insurance and depositor discipline: direct evidence on bank switching behaviour in Japan

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Abstract:

As Japan's financial system becomes more market oriented, depositor discipline is playing a larger role in the monitoring of banks. Matching household survey data with banks' financial data, we examine households' response to bank risk and different deposit insurance schemes. We find that bank switching in response to risk increased between 1996 and 2001 and households' choice of bank adequately reflects banks' financial health. We also examine the determinants of households' knowledge of the deposit insurance scheme and how this affects switching behaviour. The results suggest that depositor discipline works and could play an important supplementary role in bank monitoring.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840802112398

Affiliations: 1: Graduate School of Systems and Information Engineering, University of Tsukuba, Tsukuba, Japan 2: Research Division, Institute for International Policy Studies, Minato-ku, Japan

Publication date: October 1, 2010

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