Genesis and Persistence of Trust in Banks

Against the background of the ongoing financial crisis the question of the genesis and persistence of trust in banks plays an important role not only for the prevention of bank runs and, related to this, for the regulation of banks, but also with respect to the perspective of customer loyalty of private investors towards their housebanks. Moreover, addressing issues of trust in banks will contribute to a better understanding of how private investors cope with the uncertainties and complexities prevailing in financial markets and will thus enrich the theory of decision-making. In every type of financial system trust has an important role. Due to the high and ever growing complexity of financial systems institutional trust meanwhile plays a more important role than personal trust. A set of institutions facilitate trust-building or trust-guarding and sometimes even trust-granting functions. Trust allows the trustor to transform fundamental uncertainty into risk. From an empirical point of view trust in banks has emerged over time as a process in which trust-guarding and trust-granting institutions played a crucial role. So it is no surprise that in a bank based financial system like Germany private households are still entrusting their money to banks today even after the financial crisis. However, since the late 1980s the institutional framework of the financial market and the governance of corporations have changed dramatically. Actors have common experiences and rely on similar sources of information and institutional knowledge and are also exposed to similar discursive models. This contributes to a social normalization or habituation of the perception of risk. We conclude that such normalization – in the sense of a conventionalization – also greatly influences the economic decision-making behavior of private households. We argue that the bank-oriented ‘conservative’ investment decisions of German savers are due to a ‘cultural embedded framework of logics of actions’ and are based on ‘intergenerational inheritance’. The understanding of the embeddedness of economic actors in different cultures such as private households and the emergence of diverse institutional settings in a historic process enables us to understand from a micro-perspective their investment behavior in different economic systems.