Search for Yield: How a Change to the Deposit Insurance Limit Affects Households’ Portfolio Allocation
We study how an increase to the deposit insurance limit affects households’ portfolio allocation. Using unique data on individual deposit accounts, a suitable natural experiment, along with detailed information on Canadian households’ portfolio holdings, we show that households respond by drawing down deposits and shifting towards mutual funds and stocks. These outflows amount to 2.8% of outstanding household deposits. The mechanism underlying these portfolio adjustments relies on differences in deposit betas of insured vs. uninsured deposits. More generous deposit insurance coverage, hence, may result in non-trivial adjustments to household portfolios.
