From Depositors’ Confidence to Credit Stability: The Role of Deposit Insurance

Abstract

Research Originality: This study assesses the impact of deposit insurance on depositors’ confidence and credit stability, incorporating gap dynamics, crisis phases (pre-, during, and post-COVID-19), and bank ownership heterogeneity. Research Objectives: This study examines the effect of deposit insurance on depositor confidence and its implications for deposit stability, and the impact of deposit stability on banks’ confidence in credit allocation. Research Methods: Three datasets- monthly macroeconomic time-series data (January 2002–May 2023) and two panel datasets covering October 2005–May 2023 and March 2012–May 2023 are estimated using PLS and OLS. Empirical Results: Deposit insurance effectively stabilizes depositor confidence, especially at private institutions. Throughout the COVID-19 pandemic, deposit insurance became increasingly critical in maintaining market sentiment. This stability in depositor confidence drives deposit accumulation, which in turn catalyzes credit supply both during and after crises. Additionally, findings suggest that depositor behavior and bank stability are sensitive to domestic and global economic fluctuations. Implications: The study recommends strengthening deposit insurance institutions and improving coordination among institutions to stabilize deposits, credit, and the financial system. JEL Classification: G21, G22, G28, E32 How to Cite:Utama, C. (2026). From Depositors’ Confidence to Credit Stability: The Role of Deposit Insurance. Signifikan: Jurnal Ilmu Ekonomi, 15(2), 421-436. https://doi.org/10.15408/sjie.v15i2.46602.