Trust in Banks During Normal and Crisis Times - Evidence from Survey Data

Abstract

We study the evolution of people's trust in banks during the global financial crisis, and the factors that determine its level. Austrian survey data show that trust in banks declined sizeably during the financial crisis, but the lowest observed trust level (60%) is still higher than that of many other institutions. We establish that a trust decline is related to agents’ subjective view of the economic situation and the direct experience of bank failures. Deposit insurance stabilizes banking trust. Both the lack of bank collapses and the extension of deposit insurance coverage had a cushioning effect on trust in banks.