Discovery@Olin, the magazine of the Washington University Olin School of Business, recently featured an article from evolve24 discussing the “Collapse of Trust in the Banking Industry.” You can read the article here.

The article noted that the current financial crisis has destroyed consumer confidence in the banking and financial industry. This will lead to a number of issues for financial firms over the longer term, including increased regulatory attention, lower respect and trust from their core customers, and far greater challenges in attracting new customers.

To overcome these obstacles, we suggested three key steps for the banking industry. First, banks must recognize that, if they have accepted TARP funding, their stakeholders now include all US taxpayers. This is an important step. These new stakeholders might never have considered working for, buying the stock of, or opening an account with these banks. Now, however, because they do consider themselves stakeholders, they will monitor the industry closely -- and they can wield considerable influence.

Second, banks must be transparent in their lending practices, their governance standards, and their sponsorship plans. This will be imperative to avoid increased media and governmental scrutiny.

Finally, banks should proactively create a new code of conduct, one that addresses the emerging risks of corporate spending and pay scale standards, corporate responsibility practices, and consumer lending, and publicize this widely to engender trust and reinforce their commitment to their new stakeholders. By creating these feelings of trust and commitment with a much wider audience than they had previously been exposed to, banks may actually be able to capitalize on the publicity and attention generated by the financial crisis. If they can establish trust with this broad stakeholder group, their potential pool of dedicated new employees, of interested new shareholders, and loyal new customers will increase significantly, providing the banks with a clear path towards previously unanticipated long-term success.