On the heels of the big banks being bailed out by the federal government, Dodd-Frank was created to mitigate risk should another collapse occur. Still, on the four-year anniversary of Dodd-Frank, consumers are weary of big banks that have not yet mended their damaged reputations with the American consumer. Perhaps there is a lesson to be learned from smaller, regional banks.
Dodd-Frank was conceived as a shield for the public from the poor practices that led to the cliff many financial institutions were leaning off of back in the latter part of the 2000s. However, the regulations have been little more than a safety net that may have actually pushed big banks further into the shadows. According to a Consumer Banking Insights study earlier this year, American's distaste for institutions like Citigroup, Bank of America and Goldman Sachs is palpable with eight out of 10 believing the bank conglomerates caused the financial crisis. It is safe to say that Americans aren't adhering to the forgive and forget mantra.
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Citi was recently fined $7 billion and late last year, JPMorgan agreed to pay an historic $13 billion to the Justice Department — both for bad mortgage-backed securities prior to the financial crisis. While corrective, these headlines serve to reinforce that bad behavior is pervasive and remind consumers of the mess banks got themselves into. Aside from fines incurred, banks have also pushed customers farther away with credit-card swiping fees, customer-service layoffs and increases in retail banking fees.
In the last four years, while big banks have looked less attractive, smaller regional banks and credit unions have seized an opportunity. Their trust has not been tarnished, and in fact, they have benefited from the big bank fallout. Four years ago, People's United Bank ran billboards in their home market of Connecticut proclaiming "170 Years. 0 Bailouts." Although bailouts occurred six years ago the message still resonates today. It turns out this hangover is both painful and protracted. Also, in the aforementioned Consumer Banking Insights study, 78 percent of Americans feel it is important to bank locally. This can be attributed to people being more concerned with helping their own local economies than feeding into the perceived corporate greed of the large national banks. In addition, the same study found almost 100 percent of consumers trusted their local bank and credit union and 84 percent state they have loyalty to their regional bank.
Big banks need broad scale operational reform and marketing campaigns that are more about demonstration and less about proclamation.
There needs to be tangible evidence of a shift in attitude and behavior, and it needs to be underpinned by a sense of humility and transparency. Now more than ever, they need to show their commitment to the communities they serve. For instance, MasterCard, a big financial player, has been active in Stand up to Cancer with a highly visible, integrated effort that promotes commerce across multiple platforms for an unassailable cause. And TD Bank has branded itself as a neighborhood bank that is more accessible with longer hours and free of "big bank inconveniences."
Four years since Dodd-Frank was passed and the dark cloud of the financial crisis still looms over big banks. Consumers see these financial institutions as the fire starters and will continue to share in that view unless big banks take more specific steps and actions to regain that trust. They want to do business with companies whose values align with their own and the "big guys" have done little to demonstrate that's the case. On the other hand, smaller, regional banks have come out with few bumps and have actually flourished by providing more personal service, connecting to their communities and, most importantly, steering clear of regulatory conflict.
Assuming smaller banks can stay apace with requisite technological advances, their "human factor" may just give them an edge. And if big banks are serious about salvaging their reputations, they may want to take a page from what the "little guys" are doing.
Commentary by Dan O'Donnell, managing director of financial services at The VIA Agency.