The importance of trust for inter-organizational relationships

Purpose - This paper aims to examine interbank market practices in a crisis to understand the importance of trust in dealing with control problems and managing risk in inter-organizational relationships (IORs). Design/methodology/approach - A qualitative field study was conducted to collect data from two case-study banks and two key banking industry institutions. Findings - The findings illustrate the use of trust-based partner-selection criteria such as guaranteed banks (i.e., banks granted special status by key banking industry institutions) and “clan-related” banks. In addition, the findings present several trust-based performance-control processes regarding the selected counterparties, such as negative expectations, goodwill and information sharing. Research limitations/implications - This paper highlights IORs and considers how associated control problems and risks are affected by trust in the context of a large-scale crisis. Practical implications - The findings provide insights into interbank market practices during the global financial crisis with respect to partner selection and performance control. Originality/value - The empirical case of the banking industry helps broaden our understanding of inter-IORs.