Financial Competence of Individual Depositors : The Influence of Institutional Factors on Market Discipline and Depositors' Investment Strategies

This paper examines the investment strategies of individual depositors in Russia. Basing on the results of the poll covering depositors of eight Moscow banks we study the depositors' decision-making processes in making choice of the bank, determining whether it is reliable, monitoring of this reliability and using the mechanisms of market discipline. We found the confirmation for market discipline hypothesis in terms of depositors' intentions: bank clients claim that the information about changes in bank's financial indicators they are ready to change their investment strategies. We found out that while the depositor's total funds in his or her bank grow the intensity of market discipline falls, but the propensity to monitor the reliability of the bank increases. The latter is also true when the share of insured deposits in total deposits decreases. The deposit insurance system added some confidence in bank reliability, but there is the significant proportion of depositors who do not believe in the guaranties provided by the system as well of those who have incorrect notion of DIS compensation mechanisms. However it is the depositors, for whom the deposit insurance coverage is not enough, who are the most likely to become the subjects of market discipline