What is the Effect of a Change in Customers´ Trust, Following a Banking Collapse, on Their Loyalty towards Their Own Bank?
Thorhallur Gudlaugsson, Fridrik Eysteinsson

Abstract
In October 2008 the three biggest retail banks in Iceland collapsed. This paper focuses on the effect of this collapse on customers’ trust towards banks and the effect that a change in their level of trust has on their loyalty towards their own bank. The research question is “Do customers trust their own bank more than others and could that explain why they do not switch banks more often than in a normal year following a reduced level of trust?” Data sets from three surveys are used to answer the research question, the first one done in March 2008, the second one in February 2011 and the third one in February 2013. From the findings of this research it can be deduced that customers of banks trust their own bank more than they trust other banks following a banking collapse and even though the level of trust is down customers do not have a reason to switch banks if that decision is based on their level of trust. This fact may explain why customers of the Icelandic banks did not switch banks in greater numbers than was actually the case. Now customer trust towards the Icelandic banks is on the rebound and their level of trust towards their own bank remains higher than for the other banks. From the findings of this research it can also be deduced that in general customers of banks trust their own bank more than they trust other banks both when their trust towards their own bank is decreasing and then increasing again following a banking collapse.

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