In the last one and a half year the financial crisis has changed the views of many people, in particular their perceptions concerning corporate responsibilities and corporate ethics. Taking this into consideration I have to stress that in some discussions I miss an important issue: The crisis’ impact on trust, no matter whether it is trust in enterprises in general or trust in banks in particular. The latter one was tremendous: A large number of banks, in particular US American banks and European banks, experienced large losses directly or indirectly due to the devaluation of securitized subprime loans at the same time in 2007 and 2008. The phenomenon has been described as bursting of the subprime bubble or very frequently as the “subprime crisis” or “US subprime mortgage crisis”, the latter one to indicate the root cause of the crisis. LAEVEN and VALENCIA (2008) called it “ongoing global liquidity crisis originated with the U.S. subprime crisis”. The crisis had major impacts on the economic system, from a loss of confidence between banks as well as from customers in banks, the latter caused so called “bank runs” in UK and nearly “bank runs” in Germany.

So what’s the matter? Trust is the fundament of our economy (and of our banking system!). To be more specific: Trust is the decision to rely on another party (i.e. person, group, or organization) under a condition of risk. This definition can be applied to persons, groups as well as organizations. And in terms of one of my favorite research objects: Trust is a very important matter for retail banking: Before customers are willing to risk their capital in a financial transaction, they want to have appropriate assurance that they will receive the product what they closed the deal for; i.e. when customers deposit their money in a bank, they trust the bank not to fail and to pay back the money. Hence intending to buy a financial product from a bank may represent a willingness to be vulnerable in many ways: The product purchase can be faulty and the bank can refuse to refund the customer; the product may require service or adaptations in the future, or the bank or the bank’s product supplier can fail to provide such services or even payback in an adequate manner. Financial products are very sensitive services, since customer cannot overview the bank’s ability to offer the promised service at the time when they sign the contract. Customers have to trust in the bank and its promised reliability. It also is impossible for the customer to check and compare the bank’s ability in advance, since some of the products are not easy to compare. At last the customer has to trust the bank as a whole, and not just to focus on a single product.

Furthermore it is important to understand the nature of financial products. Financial products are abstract; therefore they require a specific level of explanation. In comparison with other goods and services, some financial products also require a high level of customer’s economic expertise. GRUDZEWSKI et al (2008) describes such a situation as an information asymmetry: The bank enjoys not only organizational and financial advantage, but mainly advantages based on information. Unfortunately, there were some players in the market who employed marketing techniques to hide the true character of certain products; at the end of the day those players were using this information asymmetry to sell products to customers.

To analyze the situation and to offer ideas to gain new trust in banks and the banking industry I had the opportunity to write a paper for a conference at the Robert Morris University in September this year. My paper analyses conditions and options for retail banks to develop and to maintain trust. For this purpose it provides an overview of the nature and concepts of trust as well as of criteria of retail banking. The paper also reviews studies that investigate the recent development of trust in banks. In the first section trust management aspects in the context of financial services are discussed. This section is an attempt of how trust can be changed over time. This approach is in line with the view of others as KOZA and LEWIN (1998), who have discussed that trust should not be viewed as a static concept. In the following section characteristics of retail banking business are outlined briefly. Some conclusions and recommendations for developing and maintaining trust are discussed in the last section. Recommendations consider a trust report, an improved communication for the deposit protection and the introduction of a Standardized Product Signing (SPS).

The paper is available as pdf-file on this website.

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