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Genesis and Persistence of Trust in Banks

Listed author(s):
  • Ingrid Groessl


    (University of Hamburg)

  • Rolf von Luede

    (University of Hamburg)

  • Jan Fleck

    (University of Hamburg)

Registered author(s):

    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.

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    Paper provided by Hamburg University, Department Wirtschaft und Politik in its series Macroeconomics and Finance Series with number 201307.

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    Length: 30 pages
    Date of creation: Nov 2013
    Handle: RePEc:hep:macppr:201307
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    1. Jeremy Edwards & Sheilagh Ogilvie, 1996. "Universal banks and German industrialization: a reappraisal," Economic History Review, Economic History Society, vol. 49(3), pages 427-446, 08.
    2. Knorr Cetina, Karin, 2007. "Economic sociology and the sociology of finance: Four distinctions, two developments, one field?," economic sociology_the european electronic newsletter, Max Planck Institute for the Study of Societies, vol. 8(3), pages 4-10.
    3. Bart Nooteboom, 2007. "Social capital, institutions and trust," Review of Social Economy, Taylor & Francis Journals, vol. 65(1), pages 29-53.
    4. Allen, Franklin & Gale, Douglas, 1997. "Financial Markets, Intermediaries, and Intertemporal Smoothing," Journal of Political Economy, University of Chicago Press, vol. 105(3), pages 523-546, June.
    5. Mitchell A. Petersen & Raghuram G. Rajan, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 407-443.
    6. Rin, Marco Da, 1996. "Understanding the development of the German Kreditbanken, 1850–1914: an approach from the economics of information," Financial History Review, Cambridge University Press, vol. 3(01), pages 29-47, April.
    7. Lazaric Nathalie & Lorenz Edward, 1998. "Trust and Economic Learning," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 8(2-3), pages 1-10, June.
    8. Timothy W. Guinnane, 2002. "Delegated Monitors, Large and Small: Germany's Banking System, 1800–1914," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 73-124, March.
    9. Guinnane, Timothy W., 2001. "Cooperatives As Information Machines: German Rural Credit Cooperatives, 1883 1914," The Journal of Economic History, Cambridge University Press, vol. 61(02), pages 366-389, June.
    10. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
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