Here's something bound to make our Founding Fathers roll over in their graves: Americans have more trust in banks than in Congress.
That's according to a recent Gallup poll that showed 26% of poll respondents with a "great deal / quite a lot" of confidence in banks, while only 10% said the same about Congress. For the die-hard Gallup fans out there, this may sound familiar, since banks beat out Congress last year -- although at that point, it was by a narrower margin of 21% to 13%.
This doesn't paint a flattering picture of Congress -- its year-over-year confidence drop was topped only by "the medical system," which fell six percentage points from 41% to 35%. The results do, however, show consumer faith in banks returning.
A separate Gallup note showed that the percentage of American's with a "great deal" of confidence in banks peaked at 53% in 2004 only to plummet all the way to 21% in 2012. Now it looks like we may be seeing the seeds of a turnaround. With stronger banking balance sheets and a good showing during the Federal Reserve's stress tests earlier this year, Gallup noted:
Given this context, Americans' improving perceptions of their banking institutions appear to be realistic. In turn, this provides an opportunity for banks, their regulators, and their stakeholders to build on and create momentum for increasing Americans' confidence in the U.S. banking system.
The five-percentage-point improvement for banks versus last year was the best for any category that Gallup queried about in this poll. It also put banks ahead of newspapers and and television news.
This is far from a passing nicety for banks. Go to the website for any bank, and you're met with an array of products -- checking accounts, mortgage loans, credit cards, investment accounts, CDs. When consumers don't have confidence in banks, they're not going to put themselves at risk by using these products. As confidence returns, formerly reluctant banking customers may return as well.
But it's important to remember too that this isn't an on/off switch. The bigger impact may be seen in current banking customers who are becoming more willing to take on additional banking products. "Cross selling" has been the watchword at banks since the financial crisis. With interest margins -- that is, the difference between what banks collect on their loans and pay on their borrowings -- low and falling, banks across the spectrum have been keen on making up the difference by deepening the relationship with customers.
Wells Fargo (NYSE:WFC) is widely seen as the king of cross selling and proudly states on its website that "our average retail banking household has about six products with us." It's looking to get that number to eight "and beyond." Bank of America (NYSE:BAC) has hit some speed bumps with its cross-selling push, but it's pushing nonetheless. And online job postings from U.S. Bancorp (NYSE:USB) stress the function of "identifying cross-sell opportunities with customers and making appropriate referrals." Talk to essentially any bank, and you'll likely hear the same.
Back at Gallup, the view is that "behavioral economics suggests a recovery in perceptions from the biggest financial recession since the Great Depression is likely to take an even longer time." That's a very reasonable assumption. But as shown in the Gallup numbers, those perceptions are in the early innings of recovery. And for bank investors, that recovery in perception would only add to the growing number of factors moving in favor of banks' bottom lines.
As for Congress, well, I'm not sure I can say the same.