DIprotection is considered (by depositors) to be credible/sufficient to safeguard their deposits. In both cases, depositors are likely to adjust their deposits (relative to the optimum) and/or seek additional insurance against potential deposit losses. To the extent that banking crises are accompanied by domestic currency devaluation, holding deposits in foreign currency could provide (partial) insurance against loss. This (perceived inadequacy in DI coverage) will lead to more (deposit) dollarization.
To date, no empirical study has looked at the implications