More than three-fourths of Americans distrust financial system

American's trust their banks even less thant they did in June. Image: davef3138/Flickr/CC BY-SA

A recent report shows a deepening pessimism from the American public regarding its financial system. More than three in four Americans surveyed said they do not trust the nation’s financial system. Analysts say that regulators can work to rebuild that trust. But the public must also be educated enough to know when the system is failing them.

Down 2 percent from June

The latest numbers from the quarterly Chicago Booth/Kellogg School Financial Trust Index are down to 23 percent who trust the financial system from June’s figure of 25 percent. The survey measures public trust in banks, the stock market, mutual funds and large corporations.

Luigi Zingales, one of the authors of the report, said:

“The findings in this issue reflect what’s been reported in the news and demonstrate the fragility of trust many Americans still have in the institutions where they invest their money.”

Trust in banks dips lowest

Trust in banks took the deepest hit, falling to 33 percent, versus 39 percent in June. However, more faith was placed in credit unions and in local banks than in major lenders by over half of those surveyed.

The Obama Effect

Co-author of the index, Paola Sapienza, pointed out an interesting wrinkle that illustrates what a large part politics plays in the public’s perception of the financial system.

Half of those surveyed were asked if they believed job creation should take precedent over deficit reduction. Two-thirds agreed that it should. However, the question was phrased differently for the other half of the subjects. They were asked, “Do you agree with President Obama that a government effort to create new jobs should take priority over a deficit reduction?” When the President’s name was used to preface the question, the support for jobs creation dropped considerably. Among republicans it dropped 10 percent. Among Democrats, it went down 5 percent.

Trust can be regained

As reported by UPI, Dennis Lockhart, president of the Federal Reserve Bank in Atlanta, said regulators can work at rebuilding lost trust:

“Collectively, the community of regulators must judiciously supervise individual institutions and vigilantly monitor the health of the overall system, to guard the public trust and, above all, avoid a systemic crisis.”

Consumers play a role

Lockhart also said part of that responsibility is on the public, who must be financially literate enough to monitor the quality of the financial services it accepts. Lockhart said:

“We learned over the last decade that the lack of financial literacy in our citizenry imperils the system, and failings of high-level supervisors and managers can result in considerable harm to the economy and the general public.”