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Trust in Banks? Evidence from normal times and from times of crises

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Abstract

Trust in financial institutions is of great importance for financial intermediation. Against this background, we study two questions: Has trust in banks declined during the global financial crisis and what factors determine the level of trust in banks? Employing survey evidence from Austrian households, we show that trust in banks is mainly affected by "subjective" variables like the individuals' assessment of the current economic and financial situation and by their future outlooks. After controlling for these variables we show that the financial crisis has caused a reduction in trust (around -7.5pp) which is sizable but not dramatic. Even at its lowest point (in the first quarter of 2009) 65% still report to have trust in the banking system, which is a higher percentage than for many other institutions. Furthermore, the drop is only slightly larger than the drop observed after a small, non-systemic crisis that occurred in 2006. Thus, the much-stressed notion of a genuine "trust crisis" is not reflected in our data. Finally, we provide evidence that the degree of individual information does not influence trust, that banking trust is contagious and that the extension of deposit insurance coverage in October 2008 had a positive effect on trust. JEL classification: G01, G21, Z13, O16

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Bibliographic Info

Paper provided by Oesterreichische Nationalbank (Austrian Central Bank) in its series Working Papers with number 158.

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Length: 49 pages
Date of creation: 10 Nov 2009
Date of revision:
Handle: RePEc:onb:oenbwp:158

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Keywords: Trust; Banking Sector; Financial Crisis;

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. links for 2009-12-16
    by Mark Thoma in Economist's View on 2009-12-17 07:02:53
  2. Förtroendet för bankerna är högt
    by nonicoclolasos in Nonicoclolasos on 2010-01-21 06:37:38
  3. Das Vertrauen in das Bankensystem während der Finanzkrise
    by Markus Knell und Helmut Stix in Ökonomenstimme on 2010-05-04 12:00:00
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Cited by:
  1. Luigi Guiso, 2010. "A trust-driven financial crisis. Implications for the future of financial markets," Economics Working Papers ECO2010/07, European University Institute.
  2. Dimitris Georgarakos & Roman Inderst, 2011. "Financial Advice and Stock Market Participation," BCL working papers 51, Central Bank of Luxembourg.
  3. Giancarlo Corsetti & Michael P. Devereux & Luigi Guiso & John Hassler & Gilles Saint-Paul & Hans-Werner Sinn & Jan-Egbert Sturm & Xavier Vives, 2010. "Chapter 2: A trust-driven financial crisis," EEAG Report on the European Economy, CESifo Group Munich, vol. 0, pages 53-70, 02.
  4. Elisabeth Beckmann & Thomas Scheiber, 2012. "Not So Trustworthy Anymore? The Euro as a Safe Haven Asset in Central, Eastern and Southeastern Europe," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 65-71, May.
  5. Tom Coupe, 2011. "Mattresses versus Banks - The Effect of Trust on Portfolio Composition," Discussion Papers 40, Kyiv School of Economics.
  6. Elisabeth Beckmann & Thomas Scheiber, 2012. "The Impact of Memories of High Inflation on Households’ Trust in Currencies," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 80-95, November.

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