With bonuses at the nation's biggest banks starting to recover some of their former splendor, it might be tempting to think the aftereffects of the financial crisis are fading for many of the very institutions and individuals who helped create the crisis.
But a survey of consumer sentiment from Corporate Executive Board Co. finds U.S. consumers are still suspicious of banks and other financial institutions. That suspicion is leading them to spend less on financial services than consumers in Canada, who were less severely affected by the financial crisis, according to the survey.
A paltry 17 percent of Americans reported feeling confident about their financial providers, while 40 percent reported feeling unconfident. In contrast, 23 percent of our neighbors to the north felt confident about their financial provider, and only 35 percent felt unconfident.
That mistrust, along with tough financial circumstances, is affecting Americans' appetite for buying financial services. Less than 34 percent of Americans reported having purchased financial services or engaged in financial activities in the first quarter of 2011, compared to 41 percent of Canadians.
I have mixed feelings about these results. Part of me is glad to see Americans exercising some healthy skepticism about financial providers, many of whom hung them out to dry in the years leading up to the financial crisis. But on the other hand, a lot of people are in desperate need of the right kind of financial services: sound retirement and financial planning, stable mortgages and convenient and safe bank accounts. If mistrust of the financial industry prevents people from seeking out those services, that's bad for everybody.
I think there's a little too much complacence in the financial industry about restoring consumer trust in their industry. Instead of acceding to the need for regulatory and industry changes to prevent the next big financial crisis, the industry as a whole is plowing millions of dollars into lobbying against the Consumer Financial Protection Bureau and for a full rollback of Dodd-Frank, which was, in itself, a pretty modest package of reforms.
As much as some folks in the financial industry may want to believe they live in a consequence-free environment, undermining Americans' confidence in the financial industry is really dangerous for them. Yes, Americans continue to invest in stocks and bonds to fund their retirement, but will that still be true if we have another big financial crisis in the near future? What happens to the financial industry when people decide that 401(k)s and IRAs are for suckers, and we'd be better off just expanding Social Security instead?
If American consumers become so jaded about the financial services they refuse to take a chance on buying homes or investing in the stock market, that wouldn't only mean a less dynamic American economy, it would also mean a slow death for much of the financial sector.
What do you think? Is it smart of banks to fight reform, or are they hurting themselves in the long term?