Financial Stability and Public Confidence in Banks

Lucy Chernykh; Denis Davydov; Jukka Sihvonen

doi:10.1016/j.jfs.2023.101187

Financial Stability and Public Confidence in Banks

Lucy Chernykh^*
, Denis Davydov
, Jukka Sihvonen

^*Corresponding author for this work

Clemson University
Hanken School of Economics

Research output: Contribution to journal › Article › Scientific › peer-review

8 Citations (Scopus)

6 Downloads (Pure)

Abstract

We use a novel, household opinion-based measure – Public Confidence in a Bank – to explore the role of bank-level and industry-level determinants of retail customers’ trust in commercial banks. Our study tracks bank-month confidence measures during the 1/1/2010–1/1/2019 period in an unbalanced sample of 181 closely monitored large Russian banks that collectively account for the supermajority of the country's banking assets. We find that contrary to common expectations, public confidence in a bank is heavily driven by the industry-level financial stability indicators, while bank-level risk measures play only a minimal – or, at best, supplementary – role. This result reveals the important role of overall banking sector stability in determining public perception of the safety and soundness of individual banks and justifies the leading role of industry-level stability in ensuring trust in banks.

Original language	English
Article number	101187
Number of pages	15
Journal	Journal of Financial Stability
Volume	69
Early online date	7 Oct 2023
DOIs	https://doi.org/10.1016/j.jfs.2023.101187
Publication status	Published - Dec 2023
MoE publication type	A1 Journal article-refereed

Funding

We would like to thank Zuzana Fungáčová, Alexei Karas, Michael Pagano, Laurent Weill, participants at the 2019 EFA annual meeting, the 2018 Annual CInSt Banking Workshop, and the 2018 Vaasa Banking Research Workshop, seminar participants at the Bank of Finland Institute for Emerging Economies (BOFIT) and Stockholm University for their feedback and suggestions on previous versions of this paper. We would also like to thank anonymous reviewers for their valuable comments and suggestions.

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 10 Reduced Inequalities

Keywords

Bank risk, bank failures
Customer opinions
Financial stability
Online reviews
Public confidence

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10.1016/j.jfs.2023.101187

Chernykh-Davydov-Sihvonen_Financial-stability-and-public-confidence-in-banksAccepted author manuscript, 688 KBLicence: CC BY-NC-ND

Cite this

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title = "Financial Stability and Public Confidence in Banks",

abstract = "We use a novel, household opinion-based measure {\textendash} Public Confidence in a Bank {\textendash} to explore the role of bank-level and industry-level determinants of retail customers{\textquoteright} trust in commercial banks. Our study tracks bank-month confidence measures during the 1/1/2010{\textendash}1/1/2019 period in an unbalanced sample of 181 closely monitored large Russian banks that collectively account for the supermajority of the country's banking assets. We find that contrary to common expectations, public confidence in a bank is heavily driven by the industry-level financial stability indicators, while bank-level risk measures play only a minimal {\textendash} or, at best, supplementary {\textendash} role. This result reveals the important role of overall banking sector stability in determining public perception of the safety and soundness of individual banks and justifies the leading role of industry-level stability in ensuring trust in banks.",

keywords = "Bank risk, bank failures, Customer opinions, Financial stability, Online reviews, Public confidence",

author = "Lucy Chernykh and Denis Davydov and Jukka Sihvonen",

note = "Funding Information: We would like to thank Zuzana Fung{\'a}{\v c}ov{\'a}, Alexei Karas, Michael Pagano, Laurent Weill, participants at the 2019 EFA annual meeting, the 2018 Annual CInSt Banking Workshop, and the 2018 Vaasa Banking Research Workshop, seminar participants at the Bank of Finland Institute for Emerging Economies (BOFIT) and Stockholm University for their feedback and suggestions on previous versions of this paper. We would also like to thank anonymous reviewers for their valuable comments and suggestions. Publisher Copyright: {\textcopyright} 2023 Elsevier B.V.",

year = "2023",

month = dec,

doi = "10.1016/j.jfs.2023.101187",

language = "English",

volume = "69",

journal = "Journal of Financial Stability",

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AU - Chernykh, Lucy

AU - Davydov, Denis

AU - Sihvonen, Jukka

N1 - Funding Information: We would like to thank Zuzana Fungáčová, Alexei Karas, Michael Pagano, Laurent Weill, participants at the 2019 EFA annual meeting, the 2018 Annual CInSt Banking Workshop, and the 2018 Vaasa Banking Research Workshop, seminar participants at the Bank of Finland Institute for Emerging Economies (BOFIT) and Stockholm University for their feedback and suggestions on previous versions of this paper. We would also like to thank anonymous reviewers for their valuable comments and suggestions. Publisher Copyright: © 2023 Elsevier B.V.

PY - 2023/12

Y1 - 2023/12

N2 - We use a novel, household opinion-based measure – Public Confidence in a Bank – to explore the role of bank-level and industry-level determinants of retail customers’ trust in commercial banks. Our study tracks bank-month confidence measures during the 1/1/2010–1/1/2019 period in an unbalanced sample of 181 closely monitored large Russian banks that collectively account for the supermajority of the country's banking assets. We find that contrary to common expectations, public confidence in a bank is heavily driven by the industry-level financial stability indicators, while bank-level risk measures play only a minimal – or, at best, supplementary – role. This result reveals the important role of overall banking sector stability in determining public perception of the safety and soundness of individual banks and justifies the leading role of industry-level stability in ensuring trust in banks.

AB - We use a novel, household opinion-based measure – Public Confidence in a Bank – to explore the role of bank-level and industry-level determinants of retail customers’ trust in commercial banks. Our study tracks bank-month confidence measures during the 1/1/2010–1/1/2019 period in an unbalanced sample of 181 closely monitored large Russian banks that collectively account for the supermajority of the country's banking assets. We find that contrary to common expectations, public confidence in a bank is heavily driven by the industry-level financial stability indicators, while bank-level risk measures play only a minimal – or, at best, supplementary – role. This result reveals the important role of overall banking sector stability in determining public perception of the safety and soundness of individual banks and justifies the leading role of industry-level stability in ensuring trust in banks.

KW - Bank risk, bank failures

KW - Customer opinions

KW - Financial stability

KW - Online reviews

KW - Public confidence

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DO - 10.1016/j.jfs.2023.101187

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VL - 69

JO - Journal of Financial Stability

JF - Journal of Financial Stability

M1 - 101187

ER -

Financial Stability and Public Confidence in Banks

Abstract

Funding

UN SDGs

Keywords

Access to Document

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