Banking Standards

Submission from Ipsos MORI (S024)

Executive summary

§ The British are most likely to think that there is too little regulation of the banking industry compared to publics in other countries.

§ There is a strong inverse relationship between the trust levels of banks in a given country and the percentage of consumers in that country who feel they are insufficiently regulated. Therefore, in Britain, there are low levels of trust in banks and the British strongly favour further regulation.

§ The British believe that the most important issues for the banking industry to address are irresponsible lending practices, excessive profit and repaying government loans. Operating transparently, and creating and maintaining local jobs are also issues the British would like the financial services industry to address.

§ British attitudes towards banks are shaped by the financial crisis and the bailout of the financial institutions by taxpayers. Even before the Libor scandal broke, some two in five British people already thought the banks ought to consider the extent to which they operate transparently.

§ It could be argued that banks are best to ride out this wave of low public trust, and wait for the economy to recover, with the view that economic recovery will lead British, US and European consumers to warm up to the banks and to their interests. However, western markets do not show any parallel between the current economic climate and the level of consumers’ trust in banks. We do not believe thus, that the banking industry can count on an improvement in the economic climate to make British, American or continental European consumers more trusting of them.

§ To regain public trust the banking industry should provide evidence to consumers that they are tackling the issues of concern. Therefore, in Great Britain, they should place a great deal of emphasis on their responsible lending practices and on the actions they have taken to pay back taxpayers as well as emphasising the extent to which they are operating transparently.

The evidence

1. We welcome the opportunity to submit evidence to the Parliamentary Commission on Banking Standards. The Reputation Centre at Ipsos MORI has over 40 years experience of helping clients monitor and manage their most important intangible asset, their reputation. Given our experience looking at public attitudes and specific audiences, we confine our submission to question 1 and 3 of the terms of reference of the Commission:

1.   To what extent are professional standards in UK banking absent or defective? How does this compare to (a) other leading markets (b) other professions and (c) the historic experience of the UK and its place in global markets?

3.   What have been the consequences of any problems identified in question 1 for public trust and in, and expectations of, the banking sector?

2. Our evidence draws on our most recent piece of global research amongst publics around the world. Four times a year, the Ipsos Global Reputation Centre conducts research on the issues affecting business sectors and the reputations of companies in those sectors. Our February 2012 wave considered the banking industry. We thought it would be useful for the Commission to see some of the global trends as well as Great Britain’s data, as banking is one of the more borderless industries and this helps us to compare issues of public trust in banking in Britain with how publics feel elsewhere and draw lessons.

3. The research was conducted via the Ipsos Online Panel system in 24 countries around the world: Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, Great Britain, Hungary, India, Indonesia, Italy, Japan, Mexico, Poland, Russia, Saudi Arabia, South Africa, South Korea, Spain, Sweden, Turkey and the United States. For the results of the survey presented herein, an international sample of 19,216 age 18-64 in the US and Canada, and age 16-64 in all other countries, was interviewed. Approximately 1000+ individuals participated on a country by country basis via the Ipsos Online Panel with the exception of Argentina, Belgium, Indonesia, Mexico, Poland, Russia, Saudi Arabia, South Africa, South Korea, Sweden and Turkey, where each have a sample approximately 500+. The survey was conducted between 7 and 21 February 2012, prior to the Libor scandal breaking.

4. Weighting was employed to balance demographics and ensure the sample's composition reflects that of the adult population according to the most recent country Census data available, and to provide results intended to approximate the sample universe, (in the small number of developing countries where access to the internet is limited respondents are more likely to be affluent and well connected than the average member of the population).

Reputation Snapshot for the Banking Industry

5. Some 37% of consumers around the world say the banking sector has too little regulation, compared with 24% who say it has too much. Insurance is next on the list, with 35% saying it has too little regulation, followed by packaged food at 33%.

6. In Great Britain, in particular, there is clear desire for more regulation of banking companies. Our research shows that only 5% think there is too much regulation, compared to 27% who think there is about the right amount and 68% who think there is too little.

7. Great Britain is in line with trends across Europe and North America. Amongst 24 countries surveyed, majorities of respondents in Great Britain, Spain, France, Germany, Belgium, Australia and Korea, and pluralities in the USA, Sweden and Hungary believe there is too little regulation of banks.

8. When it comes to global attitudes about the need for more regulation, no sector shows as much polarization as the banking industry. While half of consumers surveyed across Europe and North America think that banks are not sufficiently regulated, only about one quarter in the rest of the work are of the same opinion.

9. In terms of the issues most important for the financial services industry to address, British consumers focus far more on financial institutions’ responsible lending practices (52%), excessive profit (42%) and repaying government loans or financial assistance (41%) than do their counterparts elsewhere. Close behind are operating transparently (39%), and creating and maintaining local jobs (39%).

10. Seemingly, British attitudes towards banks are shaped by the 2008 financial crisis and the bailout of the financial institutions by taxpayers. It is also worth noting however, that even before the Libor scandal broke some two in five British people already though the banks ought to consider the extent to which they operate transparently.

11. Consumer attitudes towards the regulation of financial services companies are related intimately to their level of trust – or mistrust – of them. More precisely, there is a strong inverse relationship between the average ‘net trust score’ for banks in a given country and the percentage of consumers in that country who feel they are insufficiently regulated. In other words, the more consumers trust banks, the less likely they are to favour increased regulation and vice versa. Therefore, in Britain, there are low levels of trust in banks and the British favour regulation.

12. Besides showing a great deal of mistrust of banks, countries with strong support for increased oversight of banks are often those where consumers are least confident in their ability to invest in the future e.g. to save for retirement or their children’s education. Eighty-three per cent of the people surveyed in Britain said they are now less confident of their ability to invest in the future. There are, however, a few countries showing low support for regulation despite low future investment confidence – Japan, Poland and Russia.

13. Comparing the ranking of 24 countries on their level of support for increased regulation of the banking industry, as well as on two highly correlated variables – mistrust of banks and loss of investment confidence – brings to light a sharp divide between developed and emerging markets.

14. Every one of the 12 most pro-regulation countries has a higher GDP per capita (based on International Monetary Fund data in U.S. dollars for 2011) than any of the 12 most anti-regulation countries with the sole, but, exception of Japan.

15. Two European countries (Spain and France) rank in the top five on all three metrics (pro-regulation, distrust of banks, loss of economic confidence). Four other countries rank in the top half on all three metrics, of which three are European (Great Britain, Belgium and Italy) and the other is the USA.

16. In emerging countries, trust in banks, the perception that banking regulations are sufficient, and economic confidence tend to fuel each other. Where consumers view banks as reliable and valuable economic actors benefiting society, they do not see a need for further regulation. In these markets, confidence in the banking system goes hand in hand with – and may even drive – investor confidence, which affects economic growth in a positive way. Looking at all markets studied across Asia, Africa and the Middle East, the net trust score of banks and the percentage of consumers rating the economic situation of their country as "good" go hand in hand.

17. In Western countries, especially those most hit by the 2008 financial crisis and ensuing recession, the relationship between attitudes toward the banking sector (more often than not negative), attitudes toward sector regulation (predominantly in favour of more) and investment confidence (in general poor) could be described as a vicious circle. Without doubt, mistrust of banks, thanks to the financial crisis, explains support for regulation. It is likely that mistrust in banks is reinforced by extensive perceptions that the industry resists surrendering itself to increased regulation, or attending to issues of disquiet amongst consumers.

18. It could be argued that banks are best riding out this wave of public mistrust, with the view that economic recovery will lead British, US and European consumers to warm up to the banks and to their interests. We do not believe that this is a likely scenario, however.

19. Our research shows that mistrust of banks tends to go together with deflated confidence in one’s ability to invest in the future. Loss of trust in banks along with the financial crisis may have played a role in Western consumers’ loss of confidence in their ability to invest in the future. In addition, an improvement in the level of trust in banks might contribute to a renewal in investor confidence.

20. Contrary to Asian or Middle Eastern markets, Western markets do not show any parallel between the current economic climate and the level of consumers’ trust in banks. Across a meta-region, that includes all of Asia, Africa and the Middle East, the correlation of the net trust score of banks and that of the percentage of consumers rating as "good", the economic situation of their country is extremely high. Across another meta-region comprising Europe, North America and Latin America, however, there is nigh on no correlation between the average net trust score of banks and the percentage of consumers rating the economic situation of their country as "good". We do not believe that the banking industry can count on an improvement in the economic climate to make British, American or continental European consumers more trusting of banks.

21. Each bank ought to assess its own reputation, what has shaped it and what issues they are confronted with across the various markets in their footprint as well as which messages they need and can credibly convey to consumers to gain, or regain, trust.

22. For leading global financial institutions across 24 countries, the relationship between familiarity and trust is almost purely linear. The correlation between the average level of familiarity with banking companies and their net trust score shows a high correlation. In other words, the more a person knows a bank, the more likely they are to have confidence in it. However, there is an exception to this rule. It does not apply if familiarity is the result of exposure to negative news coverage, which is the case for the banks most associated with the financial crisis of 2008, and is likely to be the case for ensuing banking scandals.

Recommendations

23. Before proffering recommendations about what banks can do to recover trust from consumers, it may be helpful to consider what they should not do. More specifically, what those that are the most strongly associated with the 2008 financial crisis and suffer from a serious trust deficit should not rely on.

24. For one thing, they should not count on economic recovery to turn the tide. While there is a strong relationship between trust in banks and economic confidence in many parts of the world, it does not appear to be the case for banks associated with the 2008 financial crisis and suffering from a serious trust deficit. The problem will not solve itself.

25. Secondly, these banks should not expect that increasing familiarity would help them rebuild trust. While familiarity is usually an excellent predictor of trust, the familiarity/trust relationship does not apply to companies facing a reputation crisis. Consumers who strongly distrust a company are more likely to ignore advertising, no matter how much of it comes their way.

26. What they can do is tell their story, but only to those who are open to taking note. Banks need to identify the profile of those who are already on their side, those they might be able to convince and those they most likely will not. Then, they should focus on those who are favourably inclined and turn them into advocates, and on those who are neutral or have no opinion and may be rallied to their side.

27. Banks most strongly identified with the 2008 financial crisis and its aftermath and ensuing scandals will need to take ownership of their reputation and address head-on the issues that matter most to consumers. Chiefly, they should provide evidence to consumers across all geographies, including Britain, and demographic groups that they are tackling the issues of concern for consumers. However, they will need to customise their message to each country’s consumers. For example, in Great Britain and the USA, they should place a great deal of emphasis on their responsible lending practices and on the actions they have taken to pay back taxpayers.

28. We would be happy to provide the committee with the full data for this global survey and give any further explanation necessary.

24 August 2012

Prepared 22nd September 2012