Components of the process of institutionalizing trust in the financial and banking sector
Authors:   SESE “The Academy of Financial Management”, Grytsenko Ruslan 
Published: December 2024

Introduction. The current crisis causes shifts in the structure and functions of economic systems that are accompanied by a decrease in the level of trust to the state, to the banking system and financial institutions. When governments, central banks and financial institutions are unable to recover the necessary level of trust on national and global markets, they try to facilitate access to financial resources through quantitative easing measures, but the results of these actions are not effective if they are carried out without appropriate actions aimed at ensuring the necessary level of trust in the economy. The creation of a sustainable institution of trust allows to neutralize adverse political influence on the financial system, mitigates the negative effects of sudden regulatory changes, increases investor confidence in the financial market and its institutions, and, accordingly, increases the country's investment attractiveness, which is reflected in its sovereign rating.

Problem Statement. The task of the research is to identify the shortcomings in building trust in the financial and banking system, to identify its components that need to be institutionalized to ensure sustainable trust of investors and society.

Purpose. To determine the necessary regulatory measures to increase confidence in the financial and banking system of Ukraine and to propose methodological approaches to increasing confidence in the financial market.

Methods. General scientific and special methods were used: generalization of theoretical sources, analysis of statistical data and regulatory documents; quantitative and qualitative approaches – to characterize the economic effect of restoring trust, analysis and synthesis – to assess the impact of trust on economic development.

Results. The mechanisms of market discipline and their role in the formation of trust are generalized. The factors that influence the formation of trust as a sustainable social institution in the financial and banking system are systematized. It is determined that strengthening of state and legal regulation is a necessary component of building trust in the market regulator, which should have effective tools for market clearing tools. The need for additional requirements to increase the role and responsibility of trust rationalizers is substantiated. It is established that financial inclusion is an active component of the institution of trust, as it provides a transmission environment for the mechanism of market discipline and increases the number of alternatives when obtaining financial services, which has a positive effect on the elasticity of trust. The advantages and disadvantages of the process of digitalization of financial services are emphasized, in particular, the need for its regulation to obtain at the state level the synergy effect of the use of blockchain technologies alongside with the work of traditional financial institutions, as well as the role of digitalization in increasing trust. The methods and indicators that can be used to measure trust in the financial and banking system are demonstrated.

Conclusions. The institutionalization of trust is ensured by complex and continuous work in the following areas: improving corporate governance, ensuring the effective market discipline mechanisms, strengthening the effectiveness of the State regulations and legal backgrounds for market regulators activity, increasing the role and responsibility of ‘trust rationalizers’, development and balanced regulation of digitalization, which ultimately allows to create a sustainable institution of trust that becomes a fortress of financial stability.