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Financial Stability and Public Confidence in Banks

Author

Listed:
  • Chernykh, Lucy
  • Davydov, Denis
  • Sihvonen, Jukka

Abstract

We use a novel, household opinion-based measure – Public Confidence in a Bank – to explore the role of bank-level and industry-level determinants of retail customers’ trust in commercial banks. Our study tracks bank-month confidence measures during the 1/1/2010–1/1/2019 period in an unbalanced sample of 181 closely monitored large Russian banks that collectively account for the supermajority of the country’s banking assets. We find that contrary to common expectations, public confidence in a bank is heavily driven by the industry-level financial stability indicators, while bank-level risk measures play only a minimal – or, at best, supplementary – role. This result reveals the important role of overall banking sector stability in determining public perception of the safety and soundness of individual banks and justifies the leading role of industry-level stability in ensuring trust in banks.

Suggested Citation

  • Chernykh, Lucy & Davydov, Denis & Sihvonen, Jukka, 2023. "Financial Stability and Public Confidence in Banks," Journal of Financial Stability, Elsevier, vol. 69(C).
    • Handle: RePEc:eee:finsta:v:69:y:2023:i:c:s1572308923000876
    DOI: 10.1016/j.jfs.2023.101187
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    More about this item

    Keywords

    Financial stability; Public confidence; Bank risk; bank failures; Customer opinions; Online reviews;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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