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Sukit JamjittrongThammasat University.

The Big Depositor’s Behavior under the Deposit Protection Agency Act: A Case Study in Greater Bangkok.

Are savings with financial institutions a safe haven?Are savings with financial institutions a safe haven?

Do savings have no risk?Do savings have no risk?1. Risk occurring from savings depreciation. The era of declining savings interest rate.

The inflation greater than the interest rate of savings.2. Blanket or full coverage guarantee is going to be

expired because of the Deposit Protection Agency Act.

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The beginning point: the crisis financial institution in 1979. Establishing Financial Institutions Development Fund (FIDF) on November 1985 through the enactment of an Emergency Decree regulating the Affairs of the Bank of Thailand Act. After the 1997 financial crisis, The cabinet announced a blanket guarantee for depositors and creditors of financial institutions on August 1997.Why was the role of FIDF decreased? Establishing Deposit Protection Agency (DPA) followed to DPA Act B.E.2551What reason did Thai Government expand the coverage of deposit protection towards the second and the third year for the full amount of a deposit account? Thai Royal Decree No.126.

Introduction and Statement of ProblemIntroduction and Statement of Problem(Deposit Insurance System in Thailand)

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Main Details of Thai Royal Decree No.126Main Details of Thai Royal Decree No.126

Year DurationAmount

guaranteed (previously)

Amount guaranteed (new)

1 11 August 2008 – 10 August 2009 Full Full

2 11 August 2009 – 10 August 2010 100 million baht Full

3 11 August 2010 – 10 August 2011 50 million baht Full

4 11 August 2011 – 10 August 2012 10 million baht 50 million baht

5 11 August 2012 onwards 1 million baht 1 million baht

Source: Fiscal Policy Office, Thailand.4

The guarantee by the Government over the deposit of each person at each financial institution will gradually fall from the blanket guarantee to a maximum guarantee of one million baht. There are the big depositors approximately by 1.21%; they hold 71.98% of total amount of savings in commercial banking system.

Introduction and Statement of ProblemIntroduction and Statement of Problem(Big-scale Depositors)

“The Big-scale Depositor” means the depositor has the deposits more than one million baht in all of the accounts at each financial institution.

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1. This research investigates the potential impacts of one million baht guarantee of the Act B.E.2551 and the Royal Decree No.126 on the big individual depositor’s portfolio management and the awareness of the increased risks of savings.

Before and after, the amount guarantee will be reduced to one million baht. 2. Besides, the paper explores whether independent factors play an important role in asset allocation decisions.

Behavioral concepts. Risk Preference.Demographic Factors.

Objective of the StudyObjective of the Study

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Proportional Logit Model

MethodologyMethodology

1 2 3 4 5 6ln _ _1

jiji ji ji ji ji ji ji

ji

YAGE DGEN DS S DS M DSAL DEXP

Y

7 8 9 10 11 12 13_ _ _ji ji ji ji ji ji jiDFIE DJOB P DJOB E DJOB R SCB OCB LAB

14 15 16ji ji ji jiMAB DRA D

1, ... ,i n 1 , . . . , 5j

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Dummy Variable “D” can reflect the change in portfolio management of the same individual depositor due to the Deposit Protection Agency Act.

where and

Figure 1 Characteristics of Representative Samples

Data CollectionData Collection(Representative samples in this research)

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An analysis via Generalized linear latent and mixed model: GLLAMM technique.

An analysis via Seemingly unrelated regression model: SUR technique.

-13.34% to -10.51%

Savings with financial institutions

-3.33% to -1.58%Savings with

financial institutions

6.31% to 9.67%

Government bond

0.82% to 2.21%

Government bond

0.81% to 2.65%Mutual fund, insurance, &

corporate bond

-0.13% to 0.93%Mutual fund, insurance, &

corporate bond

0.03% to 0.21%

Stock in long term

-0.29% to 0.48%

Stock in long term

0.40% to 1.43%

Other investments

-0.23% to 1.19%

Other investments

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4 Main FindingsMain Findings

An analysis via Seemingly unrelated regression model : SUR technique.

-2.45%**Savings with

financial institutions

The variables play an important role in declining savings with financial institutions.

Monthly average expense less than 50%

Field of education

Entrepreneurs

Not yet retired

Highly Overconfidence bias

Risk loving

Dummy variable “D”

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Main Findings (Cont.)Main Findings (Cont.)

15.93%

3.89%19.28%

The variables play an important role in increasing proportion of other groups of assets.

Monthly average expense less than 50%

Field of education

Entrepreneurs

Not yet retired

Highly Overconfidence bias

60.90%

Government bond

Highly Self-control bias

15.93%

Mutual fund, insurance & corporate bond

3.89%

Stock in long term

Male

19.28%Higher age

Risk loving

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Main Findings (Cont.)Main Findings (Cont.)

Other investments

On Average, savings proportion with financial institutions is estimated to decrease by 1.58% to 3.33% for 95% confidence interval. (around 78,524 to 165,496) million baht) Owing to the closure of data, we have to examine only individuals which are approximately by 61.76% of the total amount of savings in commercial banking system by using data from BOT. Savings proportion is estimated to decline approximately by 48,496 to 102,210 million baht. (61.76%*78,524 and 61.76%*165,496) The big depositors invest increasingly on government bonds approximately by 29,533 to 62,244 million baht. Investment on mutual fund, insurance, and corporate bond approximately by 7,726 to 16,283 million baht. Investment on stock in long term approximately by 1,887 to 3,977 million baht. Investment on other investments such as gold, real estate, and personal business approximately by 9,350 to 19,706 million baht.

Conclusions and ImplicationsConclusions and Implications

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Conclusions and ImplicationsConclusions and Implications

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48,496 to 102,210 million baht

29,533 to 62,244 million baht

9,350 to 19,706 million baht

7,726 to 16,283 million baht

1,887 to 3,977 million baht

Through SUR technique, Only government bond is statistically significant. This information may be beneficial for government and BOT in issuing the government bonds for economy administration in Thailand. Nonetheless, the recommendation cannot apply in any cases since we should consider the limitation of this research. From the field survey, the DPA should officially publicize to all depositors about the rules and regulations of the Act and other important information of financial institutions especiallyNPL.

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Conclusions and Implications (Cont.)Conclusions and Implications (Cont.)

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Examples of QuestionExamples of Question

TYPE STATEMENTS 1 2 3 4 5

SCB You have investment plan and exactly follow the plan. XYou plan to invest or save money to ensure the stability of wealth in the future.

X

OCB You think that total return from your portfolio is higher than the average of those of other investors or depositors.

X

You are mainly making investment decision by using the expected return.

X

LAB You often revise your investment plan and adjust it. X

MAB You think that savings should not invest in common stock. X

After you read the following statements, to what you agree with those statements. (For each question, please specify only one choice) (1-Strongly disagree, 2-Disagree, 3-Neutral, 4-Agree, and 5-Strongly agree)

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GLLAMM CommandGLLAMM Command

1) . gllamm y1 age age2 dgen dsta1_s dsta2_m dsal dexp dfield djob1_p djob2_e djob3_r scb ocb lab ma dra d, i(id) family(gaussian) link(logit)2) . gllamm y2 age age2 dgen dsta1_s dsta2_m dsal dexp dfield djob1_p djob2_e djob3_r scb ocb lab ma dra d, i(id) family(gaussian) link(logit)3) . gllamm y3 age age2 dgen dsta1_s dsta2_m dsal dexp dfield djob1_p djob2_e djob3_r scb ocb lab ma dra d, i(id) family(gaussian) link(logit)4) . gllamm y4 age age2 dgen dsta1_s dsta2_m dsal dexp dfield djob1_p djob2_e djob3_r scb ocb lab ma dra d, i(id) family(gaussian) link(logit)5) . gllamm y5 age age2 dgen dsta1_s dsta2_m dsal dexp dfield djob1_p djob2_e djob3_r scb ocb lab ma dra d, i(id) family(gaussian) link(logit)

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SUR CommandSUR Command

. sureg (y1 age age2 dgen dsta1_s dsta2_m dsal dexp dfield djob1_p djob2_e djob3_r scb ocb lab mab dra d) (y2 age age2 dgendsta1_s dsta2_m dsal dexp dfield djob1_p djob2_e djob3_r scb ocblab mab dra d) (y3 age age2 dgen dsta1_s dsta2_m dsal dexp dfield djob1_p djob2_e djob3_r scb ocb lab mab dra d) (y4 age age2 dgendsta1_s dsta2_m dsal dexp dfield djob1_p djob2_e djob3_r scb ocblab mab dra d) (y5 age age2 dgen dsta1_s dsta2_m dsal dexp dfield djob1_p djob2_e djob3_r scb ocb lab mab dra d)