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Trust and Financial Crisis Experiences

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Abstract

Using eight annual household surveys for the Netherlands between 2006 and 2013, we find that respondents’ personal adverse financial crisis experiences do not only reduce their trust in banks, but also have an immediate negative effect on generalized trust. Respondents who were customers of a bank that ran into problems have less trust in banks than respondents without this experience. Respondents who were customer of a bank that failed have a significantly stronger decline of generalized trust than other respondents. Our results also suggest that personal financial crisis experiences do not have a significant direct effect on trust in the banking supervisor.

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Notes

  1. Also trust in central banks has declined. See Ehrmann et al. (2013) for an analysis of trust in the European Central Bank.

  2. Source: http://www.financialtrustindex.org/resultswave22.htm. URL last accessed 6 March 2015.

  3. Source: http://www.gallup.com/poll/162602/european-countries-lead-world-distrust-banks.aspx. URL last accessed 4 July 2013.

  4. In contrast, there is more research on trust in public institutions. For instance, Marozzi (2014) uses the European Social Survey to construct an index of trust in public institutions in Europe. Likewise, several studies examine trust in government (e.g. Poznyak et al. 2014). Kong (2013) provides a further discussion of this strand of literature.

  5. For further details we refer to Banfield (1958), La Porta et al. (1997), Bjørnskov (2007) and Uslaner (2002, 2013) and references therein. Bjørnskov and Sønderskov (2013) offer a critical discussion of the concept.

  6. Some studies reach more qualified conclusions on the relationship between trust and performance. Roth (2009) argues that increasing trust may be detrimental for economic performance when trust starts from a high level. Dearmon and Grier (2011) find that promoting investment through institutional reform is less effective when trust is high.

  7. Some other papers focus on cross-country differences in generalized trust. For instance, Bjørnskov (2007) considers several potential determinants of cross-country differences in trust. In line with Uslaner (2002), he concludes that income inequality is the most important determinant of generalized trust. Likewise, using individual panel data for Swedish counties, Gustavsson and Jordahl (2008) find that income inequality is an important driver of generalized trust. They also report that the proportion of foreign-born inhabitants in a geographical region is negatively related to trust. Based on data for U.S. localities, Alesina and La Ferrara (2002) reach a similar conclusion. These authors also find that low generalized trust is related to recent traumatic experiences, such as illness or divorce. From the perspective of the present study, it is interesting that their evidence also suggests that financial misfortune is closely associated with low trust.

  8. Information on the CentERpanel is available at http://www.centerdata.nl/en/about-centerdata/what-we-do/data-collection/centerpanel. URL last accessed on 18 February 2015.

  9. The CentERpanel and DHS have been used in several recent articles such as Van Rooij et al. (2011, 2012) and Van der Cruijsen et al. (2012, 2013a). Van der Cruijsen et al. (2012) examine how crises experiences affected respondents’ saving decisions. They report that respondents who were customers of troubled banking institutions were subsequently more likely to spread their savings across accounts at several banks. Likewise, these respondents were also more likely to move funds across banks. Finally, Van der Cruijsen et al. find that the size of the shock is important as the strongest effects are found for respondents who experienced both a bank bailout and a bankruptcy. Van der Cruijsen et al. (2013a) use the DHS to examine what the general public knows about banking supervision. They conclude that the public’s knowledge about banking supervision is far from perfect and that respondents often expect more from supervisors than they can realistically achieve. In addition, their findings suggest that better-informed people have more realistic views on banking supervision.

  10. Van Beuningen and Schmeets (2013) construct an index for social capital for the Netherlands, which includes generalized trust using a similar question.

  11. Respondents who answer “I don’t know” are not included in the analyses.

  12. One could expand the set of control variables, for instance, by including information on the amount of financial assets and the number of accounts. When we include these variables in the regressions, our general conclusions hardly change. However, the number of observations is reduced substantially. We thank the referee for this suggestion.

  13. If there is no direct effect on trust from these two major events, it is not likely that crisis experiences will have an impact in later years.

  14. As explained in Sect. 2, we prefer estimating separate regressions for the 2006–2012 period and for 2013. However, we have also estimated the models for the 2006–2013 period. Appendix 4 reports the results. The findings are comparable to those presented in Tables 1 and 2.

  15. Q1, Q2, Q3, Q4 and Q4a are standard trust questions, which are asked every year. Q27 and Q28 are questions which were only asked in 2010 to measure crisis experiences.

  16. These questions were included to measure recent crisis experiences (i.e., the nationalization of SNS Reaal).

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Acknowledgments

We thank Corrie Vis (CentERdata) for arranging the various surveys, Robert Mosch and Ingmar van Herpt for sharing data, and Eric Uslaner and an anonymous referee for useful feedback. This article is a substantially revised version of Van der Cruijsen et al. (2013b). Views expressed in this paper do not necessarily coincide with those of De Nederlandsche Bank or the Eurosystem.

Author information

Authors and Affiliations

  1. De Nederlandsche Bank, PO Box 98, 1000 AB, Amsterdam, The Netherlands

    Carin van der Cruijsen, Jakob de Haan & David-Jan Jansen

  2. University of Groningen, Groningen, The Netherlands

    Jakob de Haan

  3. CESifo, Munich, Germany

    Jakob de Haan

Authors
  1. Carin van der Cruijsen
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  2. Jakob de Haan
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  3. David-Jan Jansen
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Corresponding author

Correspondence to Carin van der Cruijsen.

Appendices

Appendix 1

1.1 Survey Questions

1.1.1 The 2010 QuestionnaireFootnote 15

In the first part of this questionnaire you will first be asked a few questions about trust in general and then a few questions about trust in financial institutions. In the second part of this questionnaire you will be asked questions on banking supervision. In this questionnaire you can’t scroll back to the previous question.

Q1

Generally speaking would you say that most people can be trusted or that you cannot be too careful in dealing with people?

  • To be trusted

  • One cannot be careful enough

Q2

How much trust do you have in…

 

A lot of trust

Pretty much trust

Not so much trust

Absolutely no trust

De Nederlandsche Bank

    

…

    

Q3

At the moment, do you trust that the bank(s) at which you have deposits is (are) able to repay these deposits at all times?

  • Yes, completely

  • Yes, predominantly

  • Neutral

  • No, predominantly not

  • No, completely not

  • I don’t know/no opinion

Q4

In general, do you trust that banks in the Netherlands are able to repay deposits at all times?

  • Yes, completely

  • Yes, predominantly

  • Neutral

  • No, predominantly not

  • No, completely not

  • I don’t know/no opinion

Q4a

During the past year have you ever thought about the possibility that banks in the Netherlands might go bankrupt?

  • No, never

  • No, not often

  • Yes, now and then

  • Yes, very often

  • I don’t know/no opinion

…

Q27

During the past 3 years did a bank at which you were customer go bankrupt?

  • Yes, DSB

  • Yes, Icesave

  • Yes, other…

  • No

Q28

During the past 3 years did a bank at which you were customer survive with the help of government support?

  • Yes

  • No

  • I don’t know

…

1.1.2 The 2013 QuestionnaireFootnote 16

…

Q13

Did you have money at a savings account of a Dutch bank at the moment that this bank was nationalized in 2013 by the Dutch government?

  • Yes

  • No

  • I don’t know

if q13 = Yes

Q14

At which Dutch bank(s) did you have money on a savings account at the moment that this bank was (these banks were) nationalized in 2013 by the government? [more than one answer is possible]

  • ASN Bank

  • SNS Bank

  • RegioBank

  • Other

if q14 = Other

Q14 and

Which bank(s)?

…

Appendix 2

See Table 3.

Table 3 Description of trust surveys
Full size table

Appendix 3

See Table 4.

Table 4 Description of variables
Full size table

Appendix 4

See Table 5.

Table 5 Random effects probit regressions for 2006–2013
Full size table

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van der Cruijsen, C., de Haan, J. & Jansen, DJ. Trust and Financial Crisis Experiences. Soc Indic Res 127, 577–600 (2016). https://doi.org/10.1007/s11205-015-0984-8

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