Economy

Confidence in U.S. Banks Down Sharply

by Dennis Jacobe, Chief Economist

Only 32% of Americans express confidence in U.S. banking institutions

PRINCETON, NJ -- The percentage of Americans saying they have a "great deal" or "quite a lot" of confidence in U.S. banks has fallen to 32% -- down nine percentage points from June 2007 and 17 percentage points from June 2006 -- matching the 32% of March 1991 and near the three-decade low of 30% in October 1991.

Confidence in Banking Takes a Tumble

This has not been a good year for banking given the subprime crisis, the Bear Stearns bailout, and the consumer credit crunch. Everyone in and around banking has assumed that all of these difficulties have taken a toll on consumer confidence in the industry. The question is how much damage has been done.

A new June 9-12 Gallup Poll shows consumer confidence in banking has fallen near its lowest level since Gallup began asking this question in April 1979. Currently, only one-third of Americans express confidence in today's banking institutions, comparable to the lows of 32% and 30% seen in March and October of 1991, respectively. This was during the 1990-1991 recession and also reflected the fallout associated with the Savings and Loan debacle of the late 1980s.

The precipitous nature of the recent decline in consumer confidence in banking is probably best reflected by how it compares to what has been happening with confidence levels in other institutions. While confidence in banks remains above the record-low level of Congress and the low levels of many other institutions, banking has been the only U.S. institution to experience a significant drop in confidence over the past year. Gallup has asked about confidence in institutions regularly since 1973. Sharp changes in the results of this question from year to year are rare, so this significant decline in confidence in banks is particularly notable.

Commentary

Given the recent negative statements and related cuts in dividends by various banks last week, it appears that the fallout from the current period of banking stress has some ways to go before it has run its course. Gallup's new poll shows that even before the latest revelations, consumer confidence in banking had taken a significant tumble.

While the existence of federal deposit insurance and the willingness of the Fed and Treasury to act to prevent a major financial services firm collapse have created a strong safety net for today's depositors, the nation's banking institutions need to be very aware of the recent plunge in consumer confidence in banking. The squeeze on the bottom line will create significant pressure to cut expenses everywhere possible, but bank management should simultaneously be doing everything possible to reassure customers -- many of whom are older Americans -- that they place safety, soundness, and customer relationships/confidence above everything else.

Survey Methods

Results are based on telephone interviews with 822 national adults, aged 18 and older, conducted June 9-12, 2008. For results based on the total sample of national adults, one can say with 95% confidence that the maximum margin of sampling error is ±4 percentage points.

Interviews are conducted with respondents on land-line telephones (for respondents with a land-line telephone) and cellular phones (for respondents who are cell-phone only).

In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.

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