By Scott Barancik
August 9 — As the economy goes, so goes American consumers' confidence in banks and the banking system.
Over the last seven-plus years of U.S. economic expansion, the public's faith in the health and safety of banks and the financial infrastructure has gotten consistently stronger, according to surveys commissioned by American Banker.
In the latest poll conducted for the newspaper by the Gallup Organization, nine out of 10 people, a higher proportion than in any of 14 previous national telephone surveys, rated the nation's banking and financial system as healthy.
They show bankers basking in the same glow that keeps everything from stock market averages to the Conference Board's economic confidence indexes to President Clinton's job-approval ratings at high, even all-time-high, levels.
Perhaps those good feelings can help commercial banks stem the tide of market-share losses to securities brokers and mutual funds. These competitors, other American Banker/Gallup results indicate, do not measure up to the same level of public trust that banks enjoy. (See other articles in this special report.)
There is a caveat: The American financial consumer has held banking health in high regard in other periods of economic strength, but that did not prevent inroads by nonbanks. And when the economy turns sour, so can these good feelings. That happened in the 1991 recession, when consumers, with the collapse of much of the thrift industry still fresh in their minds, were almost evenly divided on whether the financial system was healthy.
The banking-approval ratings have risen so high that any change from here is likely to be in the opposite direction, which some observers see as a cause for alarm.
Since the last American Banker survey was conducted, in October and November of 1997, there occurred a presidential impeachment, an economic crisis in Asia and in developing countries elsewhere, military escalations in the Middle East and Yugoslavia, the biggest mergers in banking history, and storm clouds of concern about the ability of the economy and the business community to deal with year-2000 technology glitches.
Meanwhile, the proportion of the roughly 1,000 respondents in each poll who considered the banking and financial system fairly or very healthy rose to 89%, from 85% in 1997.
Those who deemed it unhealthy dropped to 9% from 11%, and the undecideds were whittled down to 2% from 5%. (The percentages are rounded, and the margin of error is plus or minus 3 percentage points. Each respondent has at least one banking, transaction, or loan account. People who do not, the "unbanked," are excluded from the survey.)
"The American public seems to be focused on the domestic bottom line," said Charles W. Calomiris, a Columbia University finance and economics professor. "They seem to be able to disentangle the financial position of the banks from the broader crisis-reporting spree about the global financial system."
"It does represent a challenge for the industry," said James A. Sexton, the Federal Deposit Insurance Corp.'s director of supervision. He said banks would have to work hard to "continue to merit that sort of confidence."
Diane C. Swonk, deputy chief economist at Bank One Corp. in Chicago, was struck by "how little evidence there was" that year-2000 worries were affecting confidence levels. She said she saw cause for alarm in reports of "people putting money in their mattresses because of Y2K."
"Anyone reading the headlines had to be concerned," she said.
Instead, the industry continued to recover, as it were, from the nadir of 1991 and 1992, when 51% deemed the banking and financial structure fairly or very healthy.
