Trust in the State and Participation in the Russian Bank Deposit Market

Abstract: We consider the role of the state in the production of trust. The existing literature has examined how the state as a regulator is able to produce trust that facilitates market transactions. We propose that state ownership represents another mechanism of trust production in less developed countries where the state as a regulator is ineffective or corrupt. We consider the recent history of the Russian banking industry and describe events that led to the deterioration of trust in the market for household bank deposits. To repair trust and attract savings into the banking system, the Russian state relies on both regulation and ownership. To be effective, these institutional mechanisms need to be trusted and we develop hypotheses about antecedents and consequences of trust in state ownership and trust in state regulation. To test our argument about the trust-producing functions of the state, we use a survey of over 2,400 Russian individuals. We find that the antecedents and consequences of individual-level trust in state ownership differ from the antecedents and consequences of trust in state regulation, supporting the proposition that state ownership represents an independent mechanism of producing trust in the bank deposit market.