Determinants of trust in banking networks

This paper investigates the determinants of trust in banking networks and, thus, identifies several forces determining the stabilizing effect of networks. Using a unique dataset of 249 German savings banks, the empirical results show that intense interaction with central coordinators supports trust-building within the network. Larger banks and banks with strong competitive standing and high income invest less in a deeper relationship with the network. Moreover, bank's own trustworthiness is a relevant component in building trust. The banks are more willing to trust if they believe that they can influence the banking group's decisions. These findings may help to explain how banking networks can function well even in periods of financial crisis.