Denis Davydov (University of Vaasa): Why do people still trust banks?

Denis Davydov (University of Vaasa): Why do people still trust banks?

Co-author: Jukka Sihvonen (University of Vaasa)

Abstract

We introduce a new cross-sectional measure of people's confidence in commercial banks, which is based on publicly available customers' ratings and feedback. This measure is based on 126 537 individual responses on quality of products and services of more than 600 Russian banks over the period of 2009 - 2017. We postulate that higher peoples' rating for a particular bank corresponds to the higher level of peoples' confidence in this bank. Consistent with this hypothesis, we show that rating increases are associated with greater deposits growth. However, we also document that banks with higher ratings are smaller in size, have lower capital ratios and are more likely to fail. In particular, we find that even twelve month lagged values of people's rating significantly positively affect the probability of a bank failure.

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