After exploring several of the Blogs listed within the “Inspirations” page, I came across an interesting blog titled: “Trust Matters”. The blog tackles trust within organizations from all angles (creating, losing, regaining, maintaining, etc.).  Several minutes of searching through the recent posts lead me to an article that is relevant to both the current economic environment and our recent class discussions. “Gallup on Banking: Squandering Trust for 32 Years” takes a look at the declining perception of trust Americans have of the banking industry.

Gallup, a major organization specializing in opinion-based surveys and statistical analysis, released data showing the trend of American’s trust in the banking industry over the last 30+ years. A quick look at the graph supports what most would already assume, that trust in bankers is much lower than it used to be. The article has some very interesting perspectives on how trust can be regained. The move would be comprehensive, however Gallup’s main idea is that leadership within banks must start at the top and be seen throughout the entire company.

There are several points I would like to make regarding the article and data.

The first is that trust, just like financial markets, is cyclical. Data stretching back 32 years does not necessarily capture even one full cycle from highest high, to lowest low, in the economy and financial markets. A close look at the map shows that trust in banking is in some way correlated to markets/consumer confidence/etc. The trust is already bouncing back from its all-time low in the data. Surely it is unlikely that it will ever reach the highs that it was at before, but I feel that it is rebounding.

The second is that Gallup’s data shows that the low trust in banking is still higher than the trust people have in congress! A publication by Betsey Stevenson and Justin Wolfers of The Wharton School compiled the same data along with trust in other institutions (supreme court, newspapers, congress). Over the course of the past 30+ years, there are peaks and valleys in each line on the graphs.

Third, the decrease in trust in banks related to the most recent recession is the most dramatic decrease yet in any of the institutions.

Fourth, although possibly obvious, graphing trust along with unemployment shows that they move fairly inversely.

Fifth. Although the data is not available, I would be interested to see how this line continues from right to left (back in time) through more booms and busts. Would the 70% high from the 70s be the highest point on the graph? Would the 18% confidence from the ’08 recession be the lowest?

Finally, take a look a the data in the report by Stevenson and Wolfers. They find that confidence levels in all of the institutions are “pro-cyclical” and that banking is impacted strongest by the business cycle. They also exlplain the effects of unemployment as a variable.

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4 responses »

  1. KCasty says:

    Interesting that people trust banks more than Congress! Do you fit into this category? Do you think maybe this is because people understand / are aware of the activity of banks more than those of Congress?

  2. Alex Lin says:

    I think it’s interesting how there isn’t more of a correlation between trust in banks and the Dow Jones Industrial Average. Although the “Great Recession” of 2008 and its effects are reflected on the Gallup “Confidence in Banks” graph, trust in banking actually rose during the “dot-com” bubble burst at the turn of the millennium.

  3. Cheryl says:

    It is interesting to know that as low as it is, the trust in banking is still higher than the trust in Congress. I would be interested to learn about the reason behind that. Do people actually blame the government more for the financial crisis than they do for banks and the financial sector in general? As for the point you raised about having leadership within banks start at the top in order to regain trust, I cannot quite see the connection between them. Do you mean that the more exposure the leader has with employees within the company, the more trust he can gain?

  4. marko987 says:

    I believe that the reason behind lower trust in Congress might be in insufficient economic education of general population. People tend to blame government and politicians for unfavorable economic situations; failing to realize the significant impact of banking institutions on economic events. Government is blamed for high unemployment rate, low minimal wages, class inequality and similar issues. However, educated scholar might draw correlation between questionable banking decisions (implementing CDO & CDS prior to recession) and higher unemployment rate (consequence of CDO & CDS collapse). Personally, I lost more faith in traditional banking and financial services than in government. I acknowledge government’s responsibility for deregulating the financial markets, but I think financial service providers found many loopholes to abuse the given rights.

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