The effect of endowment level and deposit insurance level to depositors' withdrawal behavior: An experimental approach

• Main Authors: Andres, Kriz Daryl B., Lachica, Maria Katrina T., Lim, Johanna Christine T., Yu, Jean Kristle C.
• Format: text
• Language: English
• Published: Animo Repository 2008
• Subjects: Deposit insurance; Bank deposits; Financial institutions > Management; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/18471
• Institution: De La Salle University

Deposit insurance plays a huge role in the financial system. It provides depositors' confidence that their hard earned money is placed in good hands and that regardless of risk, they will be able to get their money back. Knowing that most people have weak risk appetite, the existence of deposit insurance allows depositors to have a feeling of security while facing risk. This study aims to determine if the level of deposit insurance (0%, 50% and 100%) and endowment (high and low) level has an effect on a depositor's withdrawal behavior. To achieve the objective of this study, 180 randomly selected students from the Economics and/or Finance Department were invited to participate in a computer-based experiment. This experiment was composed of six treatments wherein each treatment was made up of three rounds and each round is composed of four periods. The six treatments in this study differ from the amount of insurance coverage and level of endowment. The study found out that a change from low to high endowment had an effect on depositor's withdrawal behavior a factor which has been disregarded by previous studies. Given a full insurance coverage, it was observed that participants withdrew their money at the later periods. At the same time, they were more consistent with their withdrawal decisions. Furthermore, the quality of banks does not necessarily reduce the incidence of bank failure.