The latest Woody Allen movie is based on the life of Jasmine, a Manhattan socialite married to a banker who loses herself into depression as the dual life of the dishonest banker unveils. In the popular media of the post-crisis world, the picture of bankers’ greed destroying the society has become all too familiar. Hollywood however, dramatizes both sides of the story and hence for every movie made on the crisis, there is another equally compelling one that sells the dream of making it big in the city. Which side are people on is clearly not easy to assess through Woody Allen’s cinema alone.
But the survey on British Social attitudes published since 1983 is quite clear on whether the reputation of banks in public’s eye has been affected or not. In 1983, where 90% of the people surveyed thought that banks were "well run", now only 19% think that to be the case. The decline in public favor for banks is not to do with the onslaught of crisis alone. A lot of factors, it would seem, had acted against the public opinion of banks long before the crisis developed.
One of the well known factors that worked against the reputation of banks was economic inequality. With higher inequality in the 1980s, more people were to carry resentment against financial institutions. But the unification of financial services in the 1990s contributed to the resentment in some ways as well. As more and more banks came together acting in similar, standardized ways they were destined to collectively share the blame1 when crisis came along with its devastating impact on jobs and income2 3.
However, the preconditions of the crisis do not understate the effect of crisis itself. Financial crisis had immense negative impact on faith in all institutions in the UK. The faith in the UK government itself went from 40% to 20% according to the survey. In fact one of the reasons for loss of credibility in government was the role played by governments in bailing out banks.
Better prepared to handle public anger than banks, the governmental institutions have often unequivocally highlighted the failure on the banks’ part. In its report ‘Changing banking for good’4, the Parliamentary Commission which was setup to investigate the LIBOR scandal mentions that “In recent times, shockingly poor standards and culture have been revealed (in banking).” The report goes on to present “a picture of casual corruption set against a luxurious lifestyle”.
Andrew Tyrie, the Chairman of the Parliamentary Commission on Banking Standards, admitted that actions of regulators and governments have contributed to the decline in standards as well. Unfortunately for banks, as he also points out, the damage to the public opinion had already been done. With no direct interface with the public except through consumer banking, the financial industry was slow to react to the developing anger in public had its reputation damaged gravely by leaving the opportunity for press to fuel public anger against the financial institutions.
While promoting his book, Philipp Meyer, a UBS trader turned writer, described the immorality of traders he saw in banking. Writing for The Independent he said that “financial markets operate on the principle that, at our core, we’re all selfish, self-interested creatures.”He claimed that the lavish lifestyle of bankers was maintained at the cost of crumbling public institutions5.
There is indeed a recurring pattern when it comes to media reports on financial crises. An unqualified connection is often drawn between all the underperformance and bankers’ paycheck. The news stories thus told may have had some issues with causality but they were compelling enough to transform an unfavorable image of banks that prevailed during the 2000s into a severe negative perception after the crisis. The loss of jobs and industry’s behavior were all collectively attributed to large corporates and banks together 6 7. The public anger that followed created largely biased viewpoints in media and elsewhere2 with financial institutions as prime targets.
In 2009, working for JP Morgan in New York, what I witnessed as harmless and democratic protests around Chase Manhattan Plaza were soon to into a series of protests known as the Occupy Wall Street campaign. The public anger had transformed into unsettling notoriety and chaos.
While the effect of such protests on a city’s functioning and the image is clearly detrimental, what was far more unsettling at the time was the discovery that, once again, the public anger was not directed at a particular event, entity or phenomenon. In the eyes of the public, banks were collectively responsible for all that was wrong with the economy. The newspapers and media could record and analyze the events around Occupy Wall Street, but a deeper introspection on transparency in institutions, the rising pressures on the US economy and concerns related ethics in corporate governance was largely missing from the analysis.
It does not come as a surprise that the press itself has lost a lot of its prestige among public. Only 27% of the people participating in the British Social Attitudes Survey now think that newspapers are well run compared with 53% about 30 years ago. That is not to say that the role public media plays in shaping public opinion does not matter. In fact public opinion is very much shaped by the choices that journalists make everyday. As banking operates on trust of people, the damage to reputation caused by crisis is something banks would need to worry about.
The damaged reputation is sure to impact consumer banking immediately. With greater regulation and unification of products, trust has become a deciding factor for consumers in choosing different products offered by banks 8. A loss of trust would imply consumers’ disinterest in financial products and general risk-aversion. The risk aversion could reflect itself at higher levels over time and eventually as losses. The British Social Attitudes survey report points out that the attitudes to credit have significantly worsened after the financial crisis of 20099.
The job of financial institutions is to provide fair value of money to people. They act as an exchange where assets from all industries can be traded and new opportunities are created in the way. Even though investors and corporates are not immediately affected by an opinion shift, the declining public favor might help competitors of the UK financial companies and also encourage legislation to limit activities of major banks. The rise of shadow banking institutions and the government’s support for them may also be influenced by a rise in negative public opinion.
Another area to be affected would be the pool of talent that finance jobs attract. Although the choice of economics is still popular among young graduates but a swing in public opinion as well as decline in the job prospects has meant that finance companies don’t dominate the favorite choices of graduates any more. If compensation schemes come under further attack, the problems in recruitment of talent would present additional costs to financial companies.
A lot of unfavorable reporting on banks in the media points to serious problems in banking. There were issues related to mismanagement and financial misconduct in banking that still need to be taken care of. There is conclusive evidence that in pursuit of short-term goals and with limited downside risks, some banks did lose oversight and control. To be able to regain the public image the banks would need to engage more directly with public and focus on initiatives as Project Merlin. The survey of British social attitudes also hints at the rising need to support SMEs. This need, however difficult to meet, is a definite opportunity for banks to salvage their image.
Fair business practices needs to advertised among public and transparency needs be adopted more thoroughly in financial institutions. There is research suggesting that less informed persons were disproportionately far more likely to be “angry” with banks about the crises than persons that had some knowledge of banking. Investing in financial education would go a long way in restoring the faith of public in both governments and banks.
Behind current financial problems lie the unprecedented and aggressive pressures on the global economy. In Europe, where public expenditure has increased to its limits, public services struggle to support with an aging population. In Asia, the new players may have brought new energy to the global markets, but rapid modernization has presented an ever higher pressure on global resources. The development of financial institutions is necessary to respond to the new challenges and support the development of new firms which can drive the needed innovation10. Health of our banking system is something that concerns both governments and corporates.
While real problems of economy can hardly be solved with an image-building exercise, a favorable image of banking in public is necessary to ensure participation of the public. The solution to current problems does not have to be as drastic as popular media might have you think but a focus on transparency in financial transactions and assurance of public participation would ensure that the democratic institutions of our society are well prepared to address the challenges to global economy that lie ahead.
References
1. McGoldcrick P.J. et al, 1992, Competition between banks and Building Societies in the Retailing of Financial Services
2. Vincente, J., Sabate, J. and Puerta, J. (2004), “A study of industry evolution in the face of major environmental disturbances: group and firm strategic behaviour of Spanish banks, 1983-1997”, British Journal of Management, Vol. 15 No. 3, pp. 219-45
3. Bravo, R., Montana, T. and Pina, J. (2009), “The role of bank image for customers versus non-customers”, International Journal of Bank Marketing, Vol. 27 No. 4, pp. 315-34
4. http://www.publications.parliament.uk/pa/jt201314/jtselect/jtpcbs/27/27ii02.htm
5. http://www.independent.co.uk/news/world/americas/american-excess--a-wall-street-trader-tells-all-1674614.html
6. Leiser, D., Gironde, S. and Benita, R. (2010), “Human foibles or systemic failure? Lay perceptions of the 2008-2009 financial crisis”, Journal of Socio-Economics, Vol. 39, pp. 132-41
7. Bodenhausen, G., Sheppard, L. and Kramer, G. (1994), “Negative affect and social judgement: the differential impact of anger and sadness”, European Journal of Social Psychology, Vol. 24 No. 1, pp. 45-62
8. Cox, P. (2007), “Should a financial service provider care about trust? An empirical study of retail saving and investment allocations”, Journal of Financial Services Marketing, Vol. 12 No. 1, pp. 75-87.
9. John Curtice, Alison Park, A tale of two crises: banks, MPs' expenses and public opinion, British social attitudes: the 27th report
10. Rajan R.G., Zingales L., The great reversals: the politics of financial development in the twentieth century, Journal of Financial Economics 69 (2003) 5–50
But the survey on British Social attitudes published since 1983 is quite clear on whether the reputation of banks in public’s eye has been affected or not. In 1983, where 90% of the people surveyed thought that banks were "well run", now only 19% think that to be the case. The decline in public favor for banks is not to do with the onslaught of crisis alone. A lot of factors, it would seem, had acted against the public opinion of banks long before the crisis developed.
One of the well known factors that worked against the reputation of banks was economic inequality. With higher inequality in the 1980s, more people were to carry resentment against financial institutions. But the unification of financial services in the 1990s contributed to the resentment in some ways as well. As more and more banks came together acting in similar, standardized ways they were destined to collectively share the blame1 when crisis came along with its devastating impact on jobs and income2 3.
However, the preconditions of the crisis do not understate the effect of crisis itself. Financial crisis had immense negative impact on faith in all institutions in the UK. The faith in the UK government itself went from 40% to 20% according to the survey. In fact one of the reasons for loss of credibility in government was the role played by governments in bailing out banks.
Better prepared to handle public anger than banks, the governmental institutions have often unequivocally highlighted the failure on the banks’ part. In its report ‘Changing banking for good’4, the Parliamentary Commission which was setup to investigate the LIBOR scandal mentions that “In recent times, shockingly poor standards and culture have been revealed (in banking).” The report goes on to present “a picture of casual corruption set against a luxurious lifestyle”.
Andrew Tyrie, the Chairman of the Parliamentary Commission on Banking Standards, admitted that actions of regulators and governments have contributed to the decline in standards as well. Unfortunately for banks, as he also points out, the damage to the public opinion had already been done. With no direct interface with the public except through consumer banking, the financial industry was slow to react to the developing anger in public had its reputation damaged gravely by leaving the opportunity for press to fuel public anger against the financial institutions.
While promoting his book, Philipp Meyer, a UBS trader turned writer, described the immorality of traders he saw in banking. Writing for The Independent he said that “financial markets operate on the principle that, at our core, we’re all selfish, self-interested creatures.”He claimed that the lavish lifestyle of bankers was maintained at the cost of crumbling public institutions5.
There is indeed a recurring pattern when it comes to media reports on financial crises. An unqualified connection is often drawn between all the underperformance and bankers’ paycheck. The news stories thus told may have had some issues with causality but they were compelling enough to transform an unfavorable image of banks that prevailed during the 2000s into a severe negative perception after the crisis. The loss of jobs and industry’s behavior were all collectively attributed to large corporates and banks together 6 7. The public anger that followed created largely biased viewpoints in media and elsewhere2 with financial institutions as prime targets.
In 2009, working for JP Morgan in New York, what I witnessed as harmless and democratic protests around Chase Manhattan Plaza were soon to into a series of protests known as the Occupy Wall Street campaign. The public anger had transformed into unsettling notoriety and chaos.
While the effect of such protests on a city’s functioning and the image is clearly detrimental, what was far more unsettling at the time was the discovery that, once again, the public anger was not directed at a particular event, entity or phenomenon. In the eyes of the public, banks were collectively responsible for all that was wrong with the economy. The newspapers and media could record and analyze the events around Occupy Wall Street, but a deeper introspection on transparency in institutions, the rising pressures on the US economy and concerns related ethics in corporate governance was largely missing from the analysis.
It does not come as a surprise that the press itself has lost a lot of its prestige among public. Only 27% of the people participating in the British Social Attitudes Survey now think that newspapers are well run compared with 53% about 30 years ago. That is not to say that the role public media plays in shaping public opinion does not matter. In fact public opinion is very much shaped by the choices that journalists make everyday. As banking operates on trust of people, the damage to reputation caused by crisis is something banks would need to worry about.
The damaged reputation is sure to impact consumer banking immediately. With greater regulation and unification of products, trust has become a deciding factor for consumers in choosing different products offered by banks 8. A loss of trust would imply consumers’ disinterest in financial products and general risk-aversion. The risk aversion could reflect itself at higher levels over time and eventually as losses. The British Social Attitudes survey report points out that the attitudes to credit have significantly worsened after the financial crisis of 20099.
The job of financial institutions is to provide fair value of money to people. They act as an exchange where assets from all industries can be traded and new opportunities are created in the way. Even though investors and corporates are not immediately affected by an opinion shift, the declining public favor might help competitors of the UK financial companies and also encourage legislation to limit activities of major banks. The rise of shadow banking institutions and the government’s support for them may also be influenced by a rise in negative public opinion.
Another area to be affected would be the pool of talent that finance jobs attract. Although the choice of economics is still popular among young graduates but a swing in public opinion as well as decline in the job prospects has meant that finance companies don’t dominate the favorite choices of graduates any more. If compensation schemes come under further attack, the problems in recruitment of talent would present additional costs to financial companies.
A lot of unfavorable reporting on banks in the media points to serious problems in banking. There were issues related to mismanagement and financial misconduct in banking that still need to be taken care of. There is conclusive evidence that in pursuit of short-term goals and with limited downside risks, some banks did lose oversight and control. To be able to regain the public image the banks would need to engage more directly with public and focus on initiatives as Project Merlin. The survey of British social attitudes also hints at the rising need to support SMEs. This need, however difficult to meet, is a definite opportunity for banks to salvage their image.
Fair business practices needs to advertised among public and transparency needs be adopted more thoroughly in financial institutions. There is research suggesting that less informed persons were disproportionately far more likely to be “angry” with banks about the crises than persons that had some knowledge of banking. Investing in financial education would go a long way in restoring the faith of public in both governments and banks.
Behind current financial problems lie the unprecedented and aggressive pressures on the global economy. In Europe, where public expenditure has increased to its limits, public services struggle to support with an aging population. In Asia, the new players may have brought new energy to the global markets, but rapid modernization has presented an ever higher pressure on global resources. The development of financial institutions is necessary to respond to the new challenges and support the development of new firms which can drive the needed innovation10. Health of our banking system is something that concerns both governments and corporates.
While real problems of economy can hardly be solved with an image-building exercise, a favorable image of banking in public is necessary to ensure participation of the public. The solution to current problems does not have to be as drastic as popular media might have you think but a focus on transparency in financial transactions and assurance of public participation would ensure that the democratic institutions of our society are well prepared to address the challenges to global economy that lie ahead.
References
1. McGoldcrick P.J. et al, 1992, Competition between banks and Building Societies in the Retailing of Financial Services
2. Vincente, J., Sabate, J. and Puerta, J. (2004), “A study of industry evolution in the face of major environmental disturbances: group and firm strategic behaviour of Spanish banks, 1983-1997”, British Journal of Management, Vol. 15 No. 3, pp. 219-45
3. Bravo, R., Montana, T. and Pina, J. (2009), “The role of bank image for customers versus non-customers”, International Journal of Bank Marketing, Vol. 27 No. 4, pp. 315-34
4. http://www.publications.parliament.uk/pa/jt201314/jtselect/jtpcbs/27/27ii02.htm
5. http://www.independent.co.uk/news/world/americas/american-excess--a-wall-street-trader-tells-all-1674614.html
6. Leiser, D., Gironde, S. and Benita, R. (2010), “Human foibles or systemic failure? Lay perceptions of the 2008-2009 financial crisis”, Journal of Socio-Economics, Vol. 39, pp. 132-41
7. Bodenhausen, G., Sheppard, L. and Kramer, G. (1994), “Negative affect and social judgement: the differential impact of anger and sadness”, European Journal of Social Psychology, Vol. 24 No. 1, pp. 45-62
8. Cox, P. (2007), “Should a financial service provider care about trust? An empirical study of retail saving and investment allocations”, Journal of Financial Services Marketing, Vol. 12 No. 1, pp. 75-87.
9. John Curtice, Alison Park, A tale of two crises: banks, MPs' expenses and public opinion, British social attitudes: the 27th report
10. Rajan R.G., Zingales L., The great reversals: the politics of financial development in the twentieth century, Journal of Financial Economics 69 (2003) 5–50