Depositor discipline for better or for worse. What enhanced depositors' confidence on the banking system in the last ten years?

The aim of this paper is to verify the presence of depositor discipline and how it worked before, during and after the Global Financial Crisis. To that end we build up a model for testing whether depositors do discipline banks considering different degrees and measures of bank risk and changes in the features of deposit insurance schemes (DISs). To test our hypotheses, we gathered a sample of banks located in 22 OECD countries covering the period from 2005 to 2014.We found the presence of depositor discipline and also depositors' moral hazard behaviours. The results suggest that depositor discipline worked differently through the periods analysed according to the relevant changes in the economic conditions. Moreover, the specific features of DISs did not influence depositor discipline before and during the crisis; conversely they have proven to be positively evaluated by depositors in the post-crisis period.