Trust in Banks: A Tentative Conceptual Framework

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 as well as the near-collapse of banking systems during the crisis is partly captured by a growing empirical literature. However, this literature presents several 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 to bridge this gap by proposing a new conceptual framework, building on new institutional theories. 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. The proposed conceptual framework implies a new, institutional approach to banking in economic theory.