By: Daryl Tolliver
In the past several months, more consumers have become disenchanted with financial institutions amid rising fees and a string of litigation taken against the country's largest banks. However, as the housing market begins to show small signs of progress and the labor market is showing an uptick, adults are becoming once again more confident in the financial system, although challenges still remain.
According to the latest Chicago Booth/Kellogg School Financial Trust Index, 23 percent of consumers say they trust the financial industry, up 2 percentage points from the last reading taken in June 2012. Despite the small increase, there are still a large percentage of Americans who are skeptical of big banks, with many saying that they do not act in the best interest of their customers.
For example, the results show that 61 percent of respondents believe some banks choose to be large because of the political benefits associated with their size and scope of influence, rather than for efficiency reasons. The study also showed that women tend to be more skeptical of larger banks. Forty percent of men said banks chose to be large for efficiency's sake, while 51 percent of males said it was for political benefit. In contrast, 31 percent of women cited efficiency as big banks' primary motivation, while 57 percent named political reasons as a factor.
"Trust in banks has returned to levels we've reported in the last year of the Index, bouncing back to 33 percent from 27 percent just three months ago," said Luigi Zingales, co-author of the Financial Trust Index and the Robert R. McCormack Professor of Entrepreneurship and Finance at the University of Chicago Booth School of Business. "The low level of trust banks experienced last quarter was likely due to the effect of the JP Morgan scandal, demonstrating that very public cases of mismanagement can have short-run effects on trust."
Continue cultivating trust in financial services
The study also revealed that trust in community banks and credit unions was significantly higher than confidence in national banks. This is largely because local institutions typically offer more affordable features and services than large banks, such as rewards checking and reasonable overdraft privilege programs. In addition, data shows that local institutions have been more willing to extend mortgages and small business banking products than larger banks, many of which are seeking to lower their exposure by restricting credit access.