COMMENT
ASIC powers boosted to head off banking Royal Commission
The Coalition has admitted the corporate watchdog has been underperforming, and hopes new powers will restore trust - and head off the Royal Commission Bill Shorten is clamouring for.
PT1M9S 620 349No prizes for guessing which job has suffered the biggest slump in public trust over the last couple of years.
Members of the public were asked to rate 30 professions on "ethics and honesty" in a recent annual survey by Roy Morgan, and there's one group we seem to have turned on the most: bankers.
The percentage of people who ranked "bank managers" as "high" or "very high" on these metrics plunged from 43 per cent two years ago to 30 per cent, the sharpest fall of all professions included over this period.
The public's trust in bankers has fallen markedly, survey figures suggest.
Over one year, bankers' ratings also fell by more than almost everyone else, matched only by a fall in the rating for "ministers of religion".
Over the almost three decades since the survey's earliest figures from 1988, no group has seen a greater deterioration in trust than "bank managers", whose rating has fallen from 54 per cent to 30 per cent over the period. This measure of bankers' public image is not far off the record low of 26 per cent it hit in 2000.
Anyway, you get the idea. Bankers are once again not exactly in the public's good books.
(Disclaimer: newspaper journalists aren't well trusted either. They have an even lower rating for ethics and honesty of 19 per cent. In case you were wondering, car salesmen have been consistently ranked the least-trusted over the survey's near 30 years. Nurses, pharmacists and doctors were the most trusted professions.)
Trust matters
However, this isn't another piece detailing the cultural problems in the finance sector. Well, not really.
Instead, it's about why this decline in trust of bankers should matter not just to the banks themselves, but for the whole economy.
An interesting speech last month by the Bank of England's chief economist, Andy Haldane, explored the loss of trust in finance, and why economists should care about it. I'll be drawing on his work in this column.
We all know that busted banks can wreak havoc with an economy. Bank collapses often lead to costly taxpayer bail-outs, and prolonged periods of weakness in which wealth is destroyed and human potential goes to waste.
That damage can be measured, and the numbers are enormous. Haldane reckons the cumulative loss of income caused by the GFC across wealthy economies is a "mind-boggling" $US32 trillion.
However, he also suggests the "most enduring" losses from the GFC might actually be to "social capital", rather than the financial losses.
Society's glue
Social capital is not the sort of thing you'd normally expect to see central bankers speaking about.
It refers to "relationships, trust and co-operation forged between different people over time", and the "sociological glue that binds diverse societies into a collective whole".
It's highly relevant to banking – a business that's based on trust, but where trust has been eroded by the GFC and a series of scandals around the world.
Just as Australians appear to trust bankers less than they used to, people overseas have had a similar change of heart.
Haldane cites survey figures showing that around the world, only half of all consumers trust financial services companies, a trend that is also backed up by a series of polls, and the Bank of England's own research into how consumers perceive finance.
But what's all this got to do with economics?
Vital ingredient
Well, in the past economists may have taken little interest in signs that people were less trusting of bankers. Models for gross domestic product don't include "social capital", after all.
More recently, however, Haldane says things are changing. There's more and more research suggesting trust is a vital ingredient for economic growth.
"At the macro level, there is now a strong body of evidence, looking across a large range of countries and over long periods of time, that high levels of trust and co-operation are associated with higher economic growth. Put differently, a lack of trust jeopardises one of finance's key societal functions – higher growth," he says.
This damage is "particularly potent" in the finance sector, because finance is a trust business.
Finance is basically about promises to pay one another; trusting others to manage your money; or to honour their word if you take out an insurance policy.
And guess what happens when the public's trust in these promises is eroded?
People are more likely to retreat.
Measurement difficult
This might mean keeping their money in cash holdings rather than investing it, which will detract from growth. Or it might mean people use "informal" and high-cost credit such as going to a loan shark, rather than a bank.
The bottom line is that "a lack of trust in finance potentially hobbles both economic growth and financial stability", Haldane says.
Unlike the plunge in other assets, this is all very hard to put a dollar figure on, because "social capital" is necessarily fuzzy.
Even so, there seems little doubt social capital has been depleted in the financial sector, and that erosion of trust can take a toll on the whole economy.
Put another way, it would be bad news for all of us if the slide in bankers' trust ratings sees them end up at the bottom of the pile, with the car salesmen.
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