The Role of Trust in Maintaining the Resilience of Financial Markets

Abstract

The Global Financial Crisis (GFC) threatened to bring world financial markets to a halt. It is now coming to light that in the run-up to, and at the height of, the GFC, investment banks and other participants in the financial markets acted unethically as well as imprudently. This article takes a closer look at this unethical behaviour and the way in which it constitutes a failure of trust. The article defines trust and outlines why it is important in the regulation of financial markets. It then looks at three examples of breakdowns or failures of trust in the run-up to the financial crisis. The article concludes by arguing that trust is important in commercial relationships at both the intra-firm level (the relations between the different constituents of the firm) and the inter-firm level (the relations between the firm and other firms).

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