I recently hosted a meeting of financial market players to talk about how to rebuild trust in banking.
It was an interesting evening, with most of the attendees accepting that trust in banks was at an al-time low.
But how low is an all-time low?
Well, it’s pretty low according to Edelman. Edelman are the global press relations company who publish an annual trust index. The index measures the general trust in government, media and business across 26 countries through interviews with over 31,000 people.
It’s pretty comprehensive.
And yes, according to the survey, trust in banking is at an all-time low.
Most developed markets have placed trust in banks below 50%, which is a sign of being untrustworthy, with the Irish, Spanish, Brits and Dutch having the least trust and biggest drop in opinion of their banks whilst the Chinese and Indians have the most trust.
This does not mean that Chinese and Indian banks are more trustworthy than Irish and Spanish banks generally. For me, it is a sign of how the media reports the banks activities combined with the actual actions of the banks.
For example, some think that China is about to hit a financial derailment of a similar nature to the subprime crisis, whilst bad debt threatens to bring down the Indian economy according to the billionaire Uday Kotak, whose family owns almost half of the Indian bank KMB.
Nevertheless, trust in banks overall is high in India and China and low in Western economies.
Delving down a layer below, it gets interesting as this lack of trust is across all aspects of bank services: offering credit cards, providing home loans, lending to small businesses, trading and investing in government debt and launching new business.
As can also be seen, the UK has the lowest trust of all, with British citizens not even trusting that their bank will keep their information secure.
Interesting, as in another survey just released, the British trust their banks far more than their governments to protect them from financial losses.
ACI Worldwide, the payments firm, also released a survey last week, and find that 80% of British citizens think that government and law enforcement agencies only do an average or below average job of fighting card or account fraud, whilst 90% say they have confidence in their financial institution to protect them from card fraud.
So trust is a multi-coloured spectrum of issues, with trust in banks as an industry being far less trustworthy than trust in our own bank to look after our own financial assets.
These are two different things and are the reason why, even with all this trashing of the banking system and the industry’s reputation, most people have still not switched or changed their bank.
This is well illustrated when the Edelman survey charts the reasons why banks have lost trust.
It is a case of corporate culture and corruption being rotten, rather than the systems and processes the bank operates to manage our finances.
Along with the opening executive summar:
Hardly a month passed in 2012 without another financial services organization in crisis management. Whether allegations of mortgage fraud at Deutsche Bank or money laundering at HSBC, Libor manipulation at Citi and Barclays (to name just two, both of which lost their CEOs over it) or rogue traders at UBS, scandals drove news coverage. In turn, among informed publics surveyed, 56 percent of whom say that over the past year they have been aware of banking or financial services scandals, the industry’s reputation suffered.
In fact, the Trust Barometer shows globally a dip in trust in banks from 56 percent in 2008 to 45 percent today (figure 7). Of the 18 countries for which the Barometer has data back to 2008, over that time trust in banks dipped in nine, eight of which are developed countries. Over the past two years, trust in banking in the U.S. has doubled from its lowest point at 25 percent in 2011 to 50 percent
Much of the trust people place in the banking and financial services industry rests on two attributes: perceived performance and perceived behaviour. In both, banks have fared poorly.
Of the top six areas in which banks operate – lending to small business, providing home mortgage loans, offering cred- it cards, trading and investing in government debt, ensuring privacy of personal information and overseeing IPOs – in five of them, fewer than 40 percent of informed publics in developed countries rate them doing well, while the lone holdout, ensuring privacy of pe sonal information, still remains below 50 percent. In emerging countries, privacy is the only area in which trust is more than 50 percent.
Canada and China rate banks as doing well in more than one of these six areas – two in Canada, where overall trust in banks is 59 percent, and five in China, where trust in banks is 80 percent. In the UK, where over- all trust in banks is 29 percent, all six areas fall below 40 percent trust.
Among informed publics, the many banking scandals of 2012 have caused a significant trust deficit linked to culture, corruption and conflicts of interest (figure 8). Specifically, among those who are familiar with banking/financial services scandals over the past year, 25 percent of people felt corporate corruption was the biggest cause of scandal while 23 percent blamed corporate culture driven by compensation and 11 percent blamed conflict of interests. Cumulatively, these account for 59 percent. People also point to lack of regulation (20 per- cent), banks being seen as too large (13 percent) and changes in the economy (6 percent).
As performance becomes a less important factor in earning trust (see page 9), the importance of how business behaves is growing. Only one in five respondents feel business leaders will make ethical and moral decisions and only 18 percent expect business leaders to tell the truth. Clearly important, these behavioural aspects represent a growing concern for people who see these behaviours as fully within the control of business.
So the question becomes: to recapture and expand trust, do leaders in banking and financial services have what it takes (and are they willing to modify their behaviour) to overcome a damaged industry reputation? Moreover, will business leaders (outside financial services) and governmental leaders, all of whom the Barometer suggests are tarred with the same brush, listen and learn?