1. Trust in the Financial Services Industry
Reinhard Bachmann
Research Project Workshop
Project Ref ES/N013344/1: Delivering Inclusive Financial Development and Growth
SOAS University of London
3.-4. March 2017

2. What is Trust? Mind Experiment The Real World
Social Coordination Mechanisms
Reduce Uncertainty
Allow for Specific Assumptions
Pre-commitment
Social Systems Can Evolve

3. Trust, Uncertainty and Risk
Trust Absorbs Uncertainty
Trust Produces Risk
> How can an actor find
‘good’ reasons to assume
that the inherent risk of trust low?

4. Trust and Institutions
Luhmann (1979): Legal Norms (but should remain latent)
Other Relevant Institutions in Business Relationships
> shared knowledge
> ‘world-in-common’
Other views: e.g., Coleman (1990): L/G><=p/1-p

5. Types of Trust and Trustworthiness
Calculus-based
Knowledge-based
Identity-based
(Lewicki and Bunker 1996)
Ability
Benevolence
Integrity
(Mayer, Davis, Schoorman 1995)

6. Organizational Components of Trustworthiness
External Governance: Institutions and regulations
Internal Governance: Role and composition of Board of Directors
Strategy: signaling real values and priorities
Structures and Processes: sets parameters for certain behaviours
Culture: shared beliefs
Leadership and management practices: sets examples
Public Reputation: judgement by stakeholders
> Congruence
(Gillespie and Dietz 2009)

7. What can be learned from the GFC?
‘Financial markets hinge on trust, and that trust has eroded’ (Stiglitz 2008)
‘We cannot survive without the trust of our clients’ (Lloyd Blankfein, BBC 2010)
> What went wrong and what needs to be done to help build trust (again)?

8. External Governance Clinton and Bush relaxed regulation
In 1999 Glass-Seagall Act removed the separation of commercial (depository) banks and investment banks in US
Canada and Australia kept tighter regulation
-> G20’s Basel III Committee: capital reserves of 7% required.

9. Internal Governance, Structures and Process
Incentive Systems: Short-term vs. Long-term
Increase in Risk Management Capacity
. Corporate Systems; Composition and Role of the Board

10. Culture Change
‘Just as there was a time when people could smoke on airplanes, .. there was a time when a Wall Street bond trader could work with a short seller to create a bond to fail, trick and bribe the ratings companies into blessing the bond, then sell the bond to a slow-witted German without having to worry if anyone would ever know, or care, what he’d just done, That just changed.’ (Michael Lewis 2010)

11. Conclusion Trust is central category in financial services industry
Regulation is central to trust and financial services industry
Internal governance, structures, processes and culture are equally important to develop/increase trust
Trust and trustworthiness can be demonstrated/managed

12. Further Reading
Bachmann, R. and A. Zaheer (eds.) (2006), Handbook of Trust Research, Cheltenham: Edward Elgar.
Bachmann, R. and A. Zaheer (eds.) (2008), Landmark Papers on Trust, 2 Volumes, Cheltenham: Edward Elgar.
Bachmann, R. and Inkpen, A. (2011), Understanding Institutional-based Trust Building Processes in Inter-organizational Relationships. In: Organization Studies 32,2. pp
Bachmann, R, Gillespie, N. and Priem, R. (2015), Repairing Trust in Organizations and Institutions: Toward a Conceptual Framework. In: Organization Studies 36 (2015), 9: pp