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.
The depositor is trusting that her funds are safe with the bank. This is embodied in Frank Capra’s famous movie, It’s a Wonderful Life, where Jimmy Stewart saves the day with a paean to trust, to stop the run on the bank. Trust of this sort is particularly important because banks undertake maturity transformation, that is, borrow short and lend long.