Understanding the loss of trust in large banks

Abstract

Purpose -The purpose of this paper is to explore a stakeholder trust model of organizations and applies the model to diagnose the loss of trust in large banks (Universal and Investment Banks) after the global financial crisis (GFC). Prescriptions for the repair of trust are offered along with the diagnosis. Design/methodology/approach -The theoretical underpinnings of the stakeholder trust model of organizations are supported using the literature in marketing and management. Case study data on large and community banks are used to explore differences in these type of banks as they relate to trustworthiness as articulated in the stakeholder trust model of organizations. Findings -The stakeholder trust model of organizations and six dimensions of trustworthiness help to explain why trust eroded in large banks during the GFC but increased or remained stable among some community banks. This diagnosis of the loss of trust also points to interventions that will be necessary to restore trust going forward among large banks.Research limitations/implications -Scholars in marketing need to develop a more macro view of the firm that examines trust beyond customers to reflect a wider stakeholder focus and issues of corporate social responsibility, trust reputation and license to operate. Practical implications -This paper points out strategic changes, some of which are radical, that will be required to restore and sustain stakeholder trust in large banks. Social implications -Building trustworthy banks is essential to social and economic progress. Originality/value -This paper addresses a void in marketing research by moving beyond the product and transactional level focus and framing a more macro oriented approach to understand trust in banks.Economies depend on the social, structural, institutional, and cognitive preconditions that enable market exchange, namely, trust. Without the willingness of parties to rely on one another to fulfill obligations, markets breakdown and exchange grinds to a halt. The effect of a loss of trust was felt globally during the global financial crisis (GFC) of 2008 when money stopped moving and the economy ground to a halt. Joseph Stiglitz (2008), the Nobel-Prize-winning economist, summarized the problem well when he said, "financial markets hinge on trust, and that trust has eroded." This paper will offer a stakeholder trust model of organizations which seeks to correct what some have called the new marketing myopia (Smith et al., 2010) namely, the overemphasis on narrow-scope trust (products, salespeople) and an under emphasis on broad scope trust (wider stakeholders, firm-and system-level). We will use this model to explore why trust declined and how it might be repaired in large The current issue and full text archive of this journal is available at

Dealing with Royal Commission into Australian Banks: Emerging Research Agenda and Managerial Implications.

“…There is a call for a better understanding of the Australia financial service landscape by adopting the stakeholder trust model of organisations to diagnose the loss of trust in the banks after the Royal Commission finding. This call for understanding aligns with previous works of Hurley, et al (2014) which sought to understand the loss of trust in large banks after the global financial crisis (GFC), offering ideas for trust repairs.…”

“…The need for multi-strand trust development strategies is also suggested (Nienaber et al, 2014); this should be complemented with marketing communication strategies. Hurley, Gong and Waqar (2014) further noted an integrated and multifaceted approach that matches the scope and complexity of the problem should be adopted in building the banks' reputations, sending out marketing communications which consistently signal trustworthiness. Thaichon, et al (2017) advised that in a saturated market like the Australian banking industry, Banks can use their advertisements to covert a competitive edge, redefine their competitive position and helps in making banking services more tangible.…”

ESG Performance and Shareholder Value Creation in the Banking Industry: International Differences

“…It is from this bankruptcy that many countries saw how their financial markets were infected by the negative climate of the United States and began to have problems. From that moment, the impact of the banking industry on society, especially the large banks, started to become more important for all stakeholders [2][3][4].…”

Coalitions and Public Action in the Reshaping of Corporate Responsibility: The Case of the Retail Banking Industry

“…202-203). Such actions have led to a lack of trust (especially of large banks) among customers (Hurley et al 2014); and this is despite the early adoption of CR by the banking industry (Soana 2011). Not surprisingly then, the opinion poll data show that the responses to allegations of mis-selling, market manipulations and so on are directed at the retail banking sector as a whole, not simply at individual banks (Populus 2017;YouGov 2018).…”