Does distrust in banks reduce bank risk-taking?

Abstract

This paper investigates whether distrust in banks affects bank risk-taking. We test the hypothesis that increased distrust in banks prompts more vigilant monitoring by individuals, thus discouraging banks from engaging in risky behavior. Our analysis utilizes bank-level data from 85 countries spanning the years 2012-2022. We construct an indicator to measure distrust in banks using Google Trends for each country and year. We find no significant effect of distrust in banks on bank risk-taking. These results still hold after performing robustness checks. This conclusion does not challenge the commonly held view that authorities should promote trust in banks.