Looking at this data, it provides some insight as to why the President acted as he did.
However, there's more to this story than meets the eye and more questions to ask.
- What type of banks don't people trust?
- What is it about banks that they don't trust?
I am sure Edelman have this data and it would be great to see it if they do.
Banks clearly have a huge issue that is in crisis proportions and something they need to devote a lot of energy towards. Simply ignoring the issue and hoping it will go away, isn't going help. These institutions need a whole way of thinking about how they need to relate to and communicate with their customers and beyond this need ideas that prove they are to be trusted.
Posted by Ed Cotton
Posted by Ed Cotton
Here's a quote from a testimony he gave to congress yesterday.
"However, the financial and economic recovery still faces significant headwinds. Unemployment remains high, along with foreclosure and delinquency rates. Although RealtyTrac's October report shows a third straight month of decreasing foreclosure activity, foreclosures are still up nearly 19 percent since October 2008. And delinquencies of subprime residential mortgages reached over 26 percent and conforming mortgages nearly seven percent in the third quarter. Further, according to First American CoreLogic, roughly one in four homeowners owed more on their mortgages than the properties were worth in the third quarter of 2009. These conditions place enormous pressure on American families and homeowners.
Bank lending continues to contract overall, although the pace of contraction has moderated and some categories of lending are growing again. For example, commercial and industrial loans contracted at an annual rate of 27 percent in the third quarter, but 16 percent since then. Such loans are particularly important for small businesses, which generally cannot raise money by issuing debt in securities markets. Meanwhile, residential mortgage loans from banks have increased at an annual rate of two percent since the third quarter.
The contraction in many categories of bank lending reflects a combination of persistent weak demand for credit and tight lending standards at the banks, amidst mounting bank failures and commercial mortgage losses. There have been 130 bank failures this year, compared with 41 over the decade that preceded the current recession. And the number of banks that the FDIC classifies as "problem institutions" has reached over 550 this year, compared with 76 in 2007 and 252 in 2008. Further, FDIC-insured commercial banks reported that net charge-offs--that is, losses that have occurred--increased to 2.9 percent as a share of loans and leases in the third quarter, up from 0.6 percent before the recession. And delinquencies of commercial real estate loans were nine percent in the third quarter and increasing.
Banks' willingness to lend also has a significant impact on consumer spending and, consequently, economic growth. Macroeconomic Advisors, a consulting firm, found that a 10-point increase in bank's willingness to make consumer installment loans yields a 0.3 percentage point increase in personal consumption expenditures."
So, what's he saying...
- Foreclosures are still around and bigger than they were in 2008, but activity is decreasing.
- A quarter of all homeowners owe more on their property than their property is worth.
- Mortgage loans are growing, but banks are not lending to business.
- Banks are still in trouble- 130 bank failures this year and 550 classified as "problem institutions".
While many are talking about recovery, these factors which don't even examine unemployment, suggest this is going to take time.
Posted by Ed Cotton
(1) A bank should only go begging to its customers for understanding if there was a well of support and a high degree of respect for the brand and the category. Anything short of a stellar reputation and it's going to end badly. Now is not the time for such a plea.
However, Westpac in Australia seem oblivious to current sentiment. The bank sent out an email film to its customers explaining in the most patronizing way how the financial system worked and why bank rates where heading higher.
Given what people have been through with banks and the endless press on bonuses and the stratospheric pay packages of banking's top level, it's impossible to understand how Westpac's customer base could be sympathetic to the plight of a bank who now faces higher costs for borrowing money.
One can just imagine how this film came to be, harried marketing executives believing that if only the ignorant public could understand the reasons why money now cost more, things could be better, taking this thought to their ad agency and getting them to make an "educational film". The problem here is that the voice is all wrong, there's no empathy, understanding or even a recognition of some intelligence on the part of their customers. The fact this made it though the system shows an institution with a very low EQ and one that fill find its little exercise in education ends up losing it a ton of valuable customers.
Banking still has a lot to learn from how to respond to the current crisis. It does not seem like any of them get it, most don't want to acknowledge the realities of a changed context and a changed relationship. Most of the recent marketing efforts fall short, they show a lack of an insight and an inherent desire to turn the clock back to the days of old.
Recent research data from Bloomberg shows that Americans are pretty angry with bankers.
"Two-thirds of Americans say they have an unfavorable view of financial executives. More than half say big financial companies, which are expected to pay record yearend bonuses, are out only to enrich themselves and also should not have received government aid. "
The incumbents failure to get it right, could leave the door open to a smart opportunist who gets exactly what the consumer is looking for now, doesn't show the same patronizing attitude of old and finds a way to provide superior services at a much lower cost.
Posted by Ed Cotton
Despite the tight caps on travel and expense budgets, if the topic is right and there's money to be made, people will want to talk.
I just got this email about the Loan Modifications Conference, which seems like a deal at $595.
"As you know, the federal government has announced plans to do millions of loan modifications to help struggling homeowners stay in their homes and avoid foreclosure. You probably also know the ramp-up for the program has not been terribly fast or easy, as servicers struggle with capacity issues, program requirements, and mandatory test trial periods for all the modifications.
Is the government program with its stringent mandates the best way to do loan modifications? Or is best practice a mix of techniques, like increased loan terms, decreased interest rates and decreased principal? The rates of re-defaults on industry-generated loan mods have been extremely high, making getting this right an absolute imperative for all servicers."
The banking and finance industry has a lot on its plate, sorting out the home financing mess seems like it should be top of the agenda, so perhaps a conference isn't such a bad idea.
Posted by Ed Cotton
It's clear moves are afoot to try and regulate the hyper money-making activities of the banks such as mortgage backed securities and the regulators seem to be taking a fast and critical look at Flash Trading and Dark Pools. These new moves by legislators are going to challenge the ability of banks to make serious money.
This journey therefore leads to retail banking, where banks need to find new ways to make money. Nothing wrong there, but the approach so far is typical for brands that don't have any accountability; charging fees for everything. This year, banks are on track to make close to $44 billion from these fees. However, Congress today, came down hard on this activity and forced a couple of the major players to make changes.
There's nothing wrong with adding new sources of revenue, but overdraft fees seem too easy.
As bank brands focus more on retail operations, perhaps one maverick banking brand will emerge, one that starts to look for new and interesting ways of adding services, that not only generate revenue, but unlike overdraft fees, add value to the consumer.
Posted by Ed Cotton