Banks Still Bearing Backlash of Financial Crisis, Euro Zone Woes

Just 21 percent of Americans say they have confidence in banks.

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While the more visible anger at big banks that gave rise to grassroots movements such as Occupy Wall Street and the Tea Party has somewhat faded, it seems their message still resonates with Americans.

Just 21 percent of Americans say they have confidence in banks, according to a Gallup poll released Wednesday, the lowest proportion since 1979 and about half the pre-recession level of 41 percent recorded in June 2007.

The only two institutions that get lower ratings? Congress at 13 percent and health maintenance organizations at 19 percent.

But while confidence in banks is at a record low, it's not entirely surprising, experts say. Even with the Great Recession getting smaller in the rearview mirror, Americans still remember the much-maligned bailout of banks at the center of the financial crisis as involving the same institutions that were loath to give distressed homeowners a break.

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"Really what [Americans] are saying is, we don't like banks very much…[because] they foreclosed on my brother or they wouldn't modify my loan…and oh by the way they got bailed out by the government when they were in trouble," says Wendell Cochran, professor of journalism at American University and a former business reporter.

And while Cochran says it's Americans' personal experience that has marred their perception of banks, others blame a recent spate of bad press for the sour attitude.

Earlier this month, JPMorgan Chase CEO Jamie Dimon, head of the largest bank in the United States, was hauled in to explain to the Senate Banking Committee how his firm lost more than $2 billion on risky trades. Dimon admitted the bank made a series of mistakes that resulted in greater and greater losses.

"As a result, we have let a lot of people down, and we are sorry for it," he said.

But apologies do little to assuage fears of reckless bankers making dicey trades with Americans' hard-earned money, especially when it comes from one of the firms commended for doing the right things during the financial crisis.

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"[The JPMorgan debacle] has been in the press everywhere, so people are very well aware of it, and JPMorgan was one of the banks that was seen as doing right during the financial crisis," says Reena Aggarwal, professor of finance at Georgetown University's McDonough School of Business. "Then this happens and it's like, if this is happening with JPMorgan imagine what else is going on."

The media frenzy surrounding JPMorgan's astronomical losses has died down a bit, but the furor directed at banks was quickly stoked once again on news last week that Moody's had downgraded 15 of the world's largest banks, including heavyweights such as Morgan Stanley, Goldman Sachs, and JPMorgan Chase.

Moody's blamed a slew of weakening economic news that has dented banks' balance sheets for the downgrades, but that, in conjunction with JPMorgan's high-profile loss, has given those clamoring for more regulation vis-à-vis the Dodd-Frank Act more fodder for the argument that banks can't be trusted to police themselves.

But it's not just U.S. banks' questionable behavior leaving a bad taste in Americans' mouths. A constant stream of doomsday scenarios involving the euro zone fills top news headlines every day, which has helped undermine the banking industry's image as a whole.

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"There's a contagion effect," Aggarwal says. "We keep hearing about the European banks being in so much trouble, so the lay person on Main Street sort of puts all large banks together. The European situation does not help American banks."

Still, while average Americans might turn up their noses at excessive compensation packages and reports of reckless trading in the U.S. financial services industry, it's their own relationship with banks—which has been "less than perfect" over the past several years for many, Cochran quips—that really determines their feelings about financial institutions.