Turning to the role of trust for the choice of saving instruments, we again control for risk aversion, expectations and experience of economic crises to lessen the probability that trust is a proxy for other determinants of saving instrument choice (Guiso et al., 2008). We find that those who experienced a financial loss during transition are more likely to have formal savings, in particular contractual savings (3 percentage points compared to a sample mean of 24%) and capital market savings (4 percentage points compared to a sample mean of 8%). The effect on bank savings is much smaller at 4 percentage points or 5% of the sample mean. This “preference” for non-bank formal savings is likely related to the experience of banking crises during transition. Experience of economic crises exerts the strongest effect on the propensity to hold a diversified saving portfolio at 6 percentage points compared. Those who think that the economic situation of their country will improve are 3 percentage points more likely to hold formal savings – at banks or in pension funds / life insurance.

In analyzing the role of trust for the choice of saving instrument, we distinguish between trust in non-financial and financial institutions. Trust in government does not affect the choice of saving instruments; however, those who trust the EU are 2 percentage points more likely to invest in capital markets, a sizeable effect compared to the sample average of 8%. Stix (2013) shows that mistrust in the banking system due to the experience of economic crises during transition is one of the main factors driving informal savings in cash. Figure 5 presents descriptive results on the four indicators of trust in financial institutions included in the Euro Survey. Trust in both foreign and domestic banks is low compared to a non-transition economy.<sup>6</sup> In seven of 10 countries, trust in domestic banks is higher than trust in foreign banks. However, trust in the safety of deposits is higher than trust in banks and trust in the overall financial system is higher than trust in banks.<sup>7</sup> Regression results in Table 4 show that trust in financial institutions has a strong effect on savings and the choice of saving instruments. Conditional on having savings, trust in deposit safety increases the probability of holding formal savings by 4 percentage points and the probability of saving at banks by 5 percentage points – an effect similar in magnitude to having secondary education. In line with Stix (2013), we find that trust in the safety of deposits decreases the probability of saving in cash by 3 percentage points. Interestingly, those who trust financial stability are more likely to invest in life insurance or pension funds (4 percentage points) and stocks, bonds or mutual funds (2 percentage points). Compared to the sample mean of 24% and 8% the effect is sizeable, although not as large as that reported for the USA by Guiso et al. (2008). Trust in the

> 6 See Knell and Stix (2015) for comparable indicators of trust in domestic banks, foreign banks, deposit safety and financial stability.

> 7 Unfortunately, it is beyond the scope of this paper to examine the determinants of trust in financial institutions and in particular the puzzling difference between trust in the safety of deposits and trust in the stability of the financial system. Preliminary regression analyses show that memories of economic crises during transition indeed are highly correlated with the low level of trust in banks. Further regression analyses show that trust in government is highly correlated with trust in the safety of deposits. Trust in the stability of the financial system is also correlated with trust in government. However, the correlation is weaker and by contrast the correlation with trust in the EU is stronger. This may indicate that respondents are aware on the one hand of possible spillover effects from instability in the euro area and on the other hand believe that the EU institutions have a stabilizing cross-border effect.

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