Trust is crucial to eurozone interbank markets – ECB paper

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Eurozone countries’ interbank markets are strongly affected by levels of trust in the financial system, a working paper published by the European Central Bank finds.

In The interbank market puzzle, Franklin Allen et al look at how trust affects the funding of banks in different eurozone countries. They use each country’s history of bank failures as a proxy for trust. The authors argue that how governments deal with this problem has a significant impact on a country’s trust in its banking system

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