In the case of fractional risk, I would retain some part of the exposure on my own balance sheet rather than pass it all on to you, to give me some incentive to monitor the risk and continue to do due diligence. This is often described as “skin in the game”.
Trust and finance Having spent a bit of time setting the scene by describing how the process of financial intermediation works, I will now focus on the main argument: the role that trust plays in finance. Trust is pervasive at many levels of the financial system, in large part because of asymmetric information. There is the trust between the depositor and the bank.