1. Discussion of «Deposit Insurance in Times of Crises:
Safe Heaven or Regulatory Arbitrage»
Jean Roy, HEC-Montreal

2. Content
Strengths
Questions
Conclusion

3. 1. Strengths A relevant research topic: cross-border deposits
Excellent knowledge of the literature
Very extensive data base in terms of the numbers of countries, number of variables and number of years.
Sophisticated econometric work: unbalanced panel data, sensitivity analysis of the impact of various design characteristics of DI, various robustness checks.
Interesting results on the behavior of depositors
Written in a very clear and concise style

4. 2. Questions on the sample
P.9 «Our sample covers 22 bank countries11 and 131 depositor countries from 1998 to 2011 but not all bilateral cross border deposits Xijt are available for all years.»
What were the criteria to select a country as a bank country?
Are these countries included or not in the depositor group? If not, why not?
Why is Canada not included in the bank countries group, while Australia is?
Why is Macau in the bank countries group while most major Asian financial centers are not?
What are the 131 depositor countries?

5. 2. Questions on the data
Figure 1 and 2 show the distribution of cross-border deposits over time and across bank countries, still there are some questions:
What is the market share of the 4 most important bank countries (UK, Germany, Switzerland and United States)?
What is the distribution of cross-border deposits across depositor countries?
Is there concentration with regards to depositor countries?
Are there outliers, which could affect the results?

6. 2. Question on the methodology
As the DI variables do not seem very correlated,
as shown in Table A9, why is there no regression
where they would all be included at the same time?

7. 2. Questions on the results T1
To what extent is the gravity model important in this research?
How to explain the peculiar pattern of adjusted R-squared?
Gravity models: .553 and .583
All other models: .946 to .952
What part of the variance is explained by the DI variables, the control variables and the fixed effects variables?

9. 2. Questions on the results T1-T2, T3-T4
Tables 2 and 4 differ from Table 1 and 3 respectively by the fact that variable Dit is replaced by variable Dijt, which should provide different information.
However, we observe that the adjusted R-squared of Table 1 and 2 and Table 3 and 4 are essentially the same.
This begs the question: Are the information sets provided by the explanatory variables in Table 1 and 2 and Table 3 and 4 really different?

10. Adjusted R-squared from T1, T2, T3, T4

11. 2. Questions on the results T5
The results of Table 5 show that emergency actions (increases in insured deposits protection) during a crisis do increase cross border deposits.
Is there an endogeneity issue? Could emergency mesures be inluenced by the behavior of cross-border deposits?
What are the costs and benefits for the DI of the bank country of increased cross-border deposits?
The influx of foreign deposits may help the home banks, but if these fail the exposure of the DI will be greater.

12. 2. Questions for further research
What would be the performance of the model out of sample, ie as a predictive model?
Generally, what are the effects of cross-border deposits on deposit insurers?

13. 2. Questions on the conclusion
Last sentence of the conclusion p.19 :
«Likewise, our findings, documenting a novel pattern of save (sic) haven and regulatory arbitrage driven behavior by depositors, also stress the need for a coordinated regulatory strategy with respect to deposit insurance schemes».
What are the hidden assumptions to go from a descriptive study to a normative recommendation?
Are cross-border deposits «bad» and to be avoided?
Are they not the realization of depositor discipline on banks and deposit insurers?
Is not regulatory competition also a good thing?

14. 3. Conclusion
Cross-borders deposits are a very interesting and relevant topic for deposit insurers.
The paper represents a considerable amount of work which must be acknowledged.
Still some questions arise both with regard to the methodology and with regard to the implications of the results for policy.