26 Personalised trust refers to mutual co-operation built up through repeated personal interactions – for example, like visits to the doctor or hairdresser. By contrast, generalised trust is attached to an identifiable, but anonymous, group – for example, trust in the rule of law, or government or Father Christmas. For most of its history, banking has been a relationship-based business. Banks were local. The local branch manager was a pillar of the local community, serving as part financial counsellor, part psychological counsellor. Service was customised and personalised. Without wishing to be misty-eyed about this model, which was far from perfect, what it did deliver was repeated interactions with customers. This imbued banking with personalised trust, just like doctors and hairdressers. Meanwhile, its very mystique meant banking maintained a high degree of anonymous, or generalised, trust among the public too. Over time, however, this business model was changed fundamentally. Local branches went into retreat. Between 1997 and 2013, their numbers in the UK fell by over 25%. 27 The local branch manager began to disappear from view. Service became centralised and transactional. With personal connections loosening, banking began to lose personalised trust, falling behind doctors and hairdressers. Banking came to rely for its legitimacy, to an ever-greater degree, on generalised trust. That was the pre-crisis story. But when the crisis came, it dealt a hammer blow to generalised trust in banking too. Anonymity gave way to ignominy, blissful ignorance to blistering resentfulness. In the trust league table, banking plummeted from mid-table mediocrity to relegation-threatened remorse.

Instead, it can issue warnings and recommendations to national authorities and to EU institutions. These warnings and recommendations can be either public or private. The effectiveness of its recommendations will depend on the attitude of the addressees to the “comply or explain” principle. This principle simply says that either you do as recommended or you explain why you have chosen not to comply. To work, it requires respect for the institution issuing the recommendations. BIS central bankers’ speeches  3  Figure 6 The structure of the ESRB  Secretariat (about 20 people)  ECB  General Board (65 members, 37 voting members)  Steering Committee (14 members)  Advisory Technical Committee (62 members)  Advisory Scientific Committee (16 members)  The ESRB is unique in that it brings together representatives from central banks and financial supervisory authorities from all 27 Member States, as well as representatives from the three European supervisory authorities and from the European Commission. However, this also makes the General Board a large body consisting of 65 members – 37 voting and 28 non-voting. Decisions are taken by simple majority, but a majority of two thirds is needed to adopt recommendations or to make a warning or recommendation public. The fact that ESRB decide by voting rather than by consensus is important, since blocking minorities can be avoided. The majority of voting rights are held by the national central banks (27 voting rights) while the national financial supervisory authorities have one non-voting representative per Member State in the General Board.