Abstract
Abstract We develop a theory of trust in lending that distinguishes between reputation and trust. Banks emerge as more trusted lenders than non-banks. We show that trust severs the link between performance and the cost and availability of financing for lenders, but trust can be lost and is difficult to regain. Banks survive an erosion of trust better than non-banks. Banks' trust advantage arises from the lower cost of funding due to insured deposits and an endogenous belief revision channel that complements the effect of the funding cost advantage. The results have novel policy relevance for deposit insurance scope.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
