By  Updated on Mon Dec 2, 2013

Why Do Banks Have Such a Bad Rap?

 
Why Do Banks Have Such a Bad Rap?

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Though banks have never exactly had a sterling silver reputation, the widespread bank failures that occurred during the Great Depression cost thousands of people their life savings. More recently, the subprime mortgage crisis also sparked an economic crisis that we are still trying to recover from.

Whether the depression caused banks to fail, or vice versa, banks have had a difficult time shaking their tarnished reputation, and are believed by many to lack trust, credibility, and accountability.

Examining the root of the issue

People distrust banks — but why? History has shown that banking scandals have been engrained in our society, with generations of Americans being caught in the fray. This unfortunate pattern continues to this day, and because of it, many are fed up with the big banks and protesting their policies.

MSN Money recently did a study on what bothers people the most about big banks, and the results were telling. Here are reasons why people are unhappy, along with the percentages.

  • High fees 22.9%
  • Role in the bailouts or foreclosure crisis 15.2%
  • Poor service or unfair fees for small customers: 13.2%
  • Executive salaries being too high: 12.4%
  • Unclear or surprise fees 9.1%
  • Inability to resolve mistakes quickly 4.5%

These are all compelling reasons to dislike banks, especially for consumers who have personally had negative experiences.

In that same survey however, 10.7 percent of consumers answered “not sure” when asked what they disliked most about big banks, showing a deep-rooted dislike of banks based on little factual information.

A look at recent scandals

The Foreclosure Crisis: It was discovered in 2010 that big banks and lenders were fraudulently conducting improper foreclosures through the illegal practice of “robo-signing,” a term for those willing to sign any documentation without knowing what they are approving. Banks included in these practices are Bank of America, JP Morgan, Wells Fargo, and Citigroup.

Because of this, many individuals had their homes taken away from them. According to RealtyTrac, one in every 248 households in the U.S. received a foreclosure notice in September 2012. Homeowners who moved away during the process and bought and lived in a new home were sometimes given the zombie title, meaning that these people were charged fines and fees on their first home because they were assumed to be still living there, when in actuality, they were not.

The Great Recession: The recession, which started in December 2007, followed the burst of the housing bubble and led to rising unemployment rates for U.S. citizens, which peaked at 10 percent in October 2009. It is said to have been the worst recession since the Great Depression.

What precipitated this recession is thought to be attributed in part to the Reagan Administration, which embarked on a thirty-year period of deregulation to allow banks to expand, and eliminated the legislation that the federal government installed after the Great Depression, meant to prevent a similar crisis from happening.

This deregulation ripened the conditions for financial fraud, usually tied to real estate investments, and sometimes on a large scale. With so many workers being jailed by the end of the 1980s, big investment banks began merging and forming monopolies, the end result being huge investment banks like Goldman Sachs.

While that sector flourished, transparency and basic regulatory controls were thrown out the window, as these banks, financial conglomerates, and insurance firms comprised the “Securitization Food Chain,” a method of mortgage transfer through the economy. This new development created more lax terms for loans, and in turn, banks had begun to engage in riskier lending. This practice resulted in people purchasing homes they could not afford, and the housing bubble that resulted almost tripled the costs of homes from 1999 to 2007.

The takeaway

So what’s the verdict here? It would seem that the evidence is split.

Though the big banks haven’t made the best case for themselves regarding honesty and integrity, there are also those individuals who flat out advocate the banks’ demise for no particular reason.

There are two sides to the argument, and while our job is to track banking for you, we receive feedback from readers every day who review their own banks and have had issues with their banking experience.

It remains to be seen whether banks will ever be completely transparent, but in terms of the small, day-to-day tasks such as depositing savings or withdrawing cash, we think you’ll be safe.

 

Why Do Banks Have Such a Bad Rap?

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