On trust

Eeag Report on the European Economy 2010, 2010

No one disputes that trust and integrity are important in banking, but it is more difficult to delineate clearly what trust and integrity mean with regard to banking and what role they play. Toward this end, I explain, first, how the distinctive features of banking, which differentiate this activity from other kinds of business, create a particular need for trust and integrity. Despite this need, however, I caution against placing too much reliance on morality or ethics as a means of ensuring the proper functioning of the banking system at the expense of other important factors, which include market forces, government regulation, and institutional design. Finally, I describe some of the implications for trust and integrity from the changed nature of modern banking, which I identify as the division of the value chain, the new business as usual, and the phenomenon of financialization.

Since the 2007-08 crisis, banks in many countries have been facing what seems to be a serious “trust crisis”. This sharp decline in trust in banks and banking, the outcome of the near-collapse of banking systems during the crisis, is partly captured by a growing empirical literature. However, this literature presents serious shortcomings, which reflect a more general lack of theorization of trust in banks. This lack of theorization certainly has much to do with the distance between the economic literature on banks and banking and the sociological and economic literature on trust. This paper aims at bridging this gap by proposing a new conceptual framework. In particular, the paper identifies three related dimensions of trust that seem to have relevance for the banking industry: “relational”, “systemic” and “vertical” trust. While mainstream financial intermediation theory and agency theory provide a good understanding of relational trust, they are less well equipped to deal with the other dimensions of trust. The paper, therefore, builds on heterodox theories of money and debt to build a more comprehensive understanding of trust in banks. This tentative conceptual framework, in turn, has implications for current theories of banking and of trust.

International Journal of Bank Marketing, 2014

Trust is a crucial element of a viable banking industry. In the corporate market though, the characteristics of the relationships between each corporate customer and the bank is a double-sided problem. Both parties might trust the other or choose to behave opportunistically. We have analyzed the effects of inter-organizational trust and opportunism on the perception of risk. The article presents a structural equations model based on a prisoner’s dilemma logic to analyze the unique effects of trust between corporate customers and their banks. The results based on 252 corporate bank customers reveal an intriguing mixed strategy between trust from one party and opportunism from the other. The implication is that mutual trust seems to reduce the perception of risk in the market while bank opportunism significantly escalates perceived risk. Our analyses also show that when the corporate customer trusts the bank, perceived risk is significantly reduced. These findings emphasize the role of relationship marketing in the banking industry.

Journal of the British Academy, 2018

We examine how trustworthy behaviour can be achieved in the financial sector. The task is to ensure that firms are motivated to pursue the long-term interests of customers rather than pursuing short-term profits. Firms' self-interested pursuit of reputation, combined with regulation, is often not sufficient to ensure that this happens. We argue that trustworthy behaviour requires that at least some actors show a concern for the well-being of clients, or a respect for imposed standards, and that the behaviour of these actors is copied in such a way that it becomes a behavioural norm. We briefly suggest what such behavioural norms might need to be if trustworthy behaviour is to be achieved, and consider how they might be supported; we describe the research that is necessary in order to understand these norms in more detail. We argue that the norms of traders are different from the norms of those engaged in other activities, since they are inevitably self-interested, and we consider the risk that traders' norms might undermine those of other actors. We analyse the task for governance in dealing with this problem, and the role which leadership by a corporate board and management might play in doing this. We describe the need for further research to describe how this might be done.

International Journal of Economics and Accounting, 2014

Control systems rely jointly upon the rule of law and firm, system and government level governance processes. When these elements fail, the glue of society, trust, is broken. Consequently, if trust is broken there needs to be a concerted effort on the part of all market participants to rebuild trust. The failure of the financial system in Iceland in 2008 was catastrophic. The failure was systemic and, from a public policy perspective, was a story of financial integrity with application beyond Iceland. This paper documents in a coherent manner the various mechanisms that were employed by government, its regulatory agencies, its judicial processes, and the reconstituted banks themselves to rebuild trust. This paper is supplemented by interviews as well as an analysis of the mechanisms adopted, providing key lessons for governance and public policy.

Policy Research Working Papers, 1999

The Role of Trust How does incomplete trust shape the transaction costs In in Financial Sector trading assets? And how does D evelopment it affect resource allocation and pricing decisions from rational, forwardclooking Btagto Bossonte agents?

Verslas: Teorija ir Praktika, 2015

SSRN Electronic Journal, 2000

Banks are generally considered by most people to be utilities that allow for the transmission of value on a daily basis in modern society, but they also seem to create devastating events like credit crises by the manufacture of credit. How this power originated in human society is of interest. Most animals produce some degree of savings, either in caching from one season to the next or for later in one season. Often these savings are an intergenerational transfer for the initial survival of young as in some wasps, or in a later use by the same individual who produces the savings either in the same year or the next as in many birds. Caldararo has described many of these examples in an article that compares such caching to examples of human saving (Caldararo, 2009). The evolution of the bank, of institutions for organizing the savings of groups of humans has had a number of separate points of origin in history in various societies in antiquity and most recently during the Middle Ages in Europe. Why banks are seen as necessary and deserving of saving or protecting during economic crises often seems a matter of faith or dogma than of necessity. This explains why neither Bush nor Obama's advisors, nor the EU have crafted as bold actions in the present crisis as FDR took in his Bank Holiday and that regarding the Gold Standard. Similar actions are necessary as is massive employment, but attitudes towards banking prevent such measures.

2010

The interplay of discourse, power and resistance has perhaps been most clearly illustrated in the recent and ongoing financial crisis. In this context, the communication of institutions struggling to retain trust among consumers, investors and government is paramount to their survival. The public relations function, as the driver of communication activity, has been recognised as 'trust manager' as well as a process that deploys discourses for organisational and societal purposes. This theoretical paper examines trust production in financial services as it relates to discourse, power and resistance. It hypothesises five trust practicesthe act of protecting, the act of guaranteeing, the act of opening up or making transparent, the act of aligning with other trust systems and finally the act of simplifying; this latter being most closely associated with public relations.