Retail Banks Most Likely Marked As “Too Big To Fail”

During and after the 2008 financial crisis, it was investment banks like Goldman Sachs and Bear Stearns that arguably got the most scrutiny and blame for actions that helped bring about the historic recession. But six years later, it is retail banks that American voters think pose the greatest risk to the financial system.

Morning Consult polling found that 59 percent of respondents said they thought retail banks posed a risk to the entire financial system if they failed. In contrast, only 37 percent said insurance companies were too big to fail, and 35 percent said the same of investment banks. Less than a third of respondents saw wealth management firms, hedge funds or credit unions as too big to fail. The poll was conducted from October 17-21 among 1,530 registered voters and has a margin of error of 2.5 percentage points.

The findings could have important implications in the ongoing debate over what companies should be labeled as “too big to fail” by the federal government. The results suggest that retail banks may have a bigger role than expected to improve their reputation among the public.

One reason retail banks might be shouldering more of the blame than investment banks is that they are simply what the public knows best.

“I suspect most of the public only thinks about their interactions with commercial banks,” said Jim Hartley, an economics professor at Mount Holyoke College. “There is a fear that if commercial banks were to fail, normal people will lose all the money they have in their checking and savings accounts. Most people have no idea what all those other types of institutions are. They think they are just places where the rich have their wealth; so failures mean that only rich people get hurt, not normal people.”

Ann Bastianelli, a marketing professor at Indiana University’s Kelley School of Business, said that as retail banks directly attacked one another in marketing, it may have brought down the image of the entire sector, especially since many of the ways banks attack each other inevitably hurts consumers.

“It tends to be about fees and it may leave a bad taste in consumers’ mouths. We’re using your money, and we’ll charge you to use your money,” Bastianelli said.

Different age groups had the biggest differences of opinion when it came to which institutions they thought were a threat to the financial system. Forty-nine percent of 18 to 29-year-olds saw retail banks as too big to fail, while voters age 65 and over marked retail banks a full 16 percentage points higher, at 65 percent.

That split may be due to losses the most senior age group faced in the financial crisis, particularly with retirement savings, Bastianelli said. She also said online banking has won over younger consumers in a way that has not worked for older Americans.

“I suspect that people that are 66 aren’t doing online banking, so they don’t feel as if they have control,” Bastianelli said. “Before online banking they felt like they had more control. They like the retail banks that know them by name, and treat them more personally. If banking can feel personal again, and can feel as if retail banks can be more trustworthy again, and people want to give them money again.”