Five years after the economic crisis, banks have a huge problem that could start extracting a significant toll on their bottom lines.
And the hits keeps coming with this this week's announcement from Credit Suisse that it's pleading guilty to helping Americans evade taxes. In fact, Attorney General Eric Holder recently said that no bank is "too big to jail," as his Justice Department pursues criminal charges against a number of financial institutions.
Does it really matter ? You could be forgiven for thinking it doesn't.
After all, a historically bad reputation hasn't stopped banks from delivering historically good returns. Bank profits reached an all-time high in 2013 and large U.S. bank stocks have outperformed the S&P 500 for two years running for the first time since 2003.
If a half-decade of public outrage and Occupy Wall Street isn't enough of a reputational blow to knock banks off their stride, it's fair to wonder what is.
But the toxic reputation of banks is still a huge problem - a time bomb that could soon extract a significant toll on their bottom lines.
It may seem an odd argument to make at a time when banks are so profitable and influential. But though banks have won a few short-term battles in Washington, they're losing the long-term war for public opinion. Public confidence in banks has marginally improved but is still well below pre-recession levels, and the consequences are showing up in the broader political and regulatory debate.
Last year, a bipartisan group of senators introduced a bill that would have effectively reinstated the Glass-Steagall regulations that separated commercial and investment-banking activities. And as jockeying for the 2016 presidential race starts, commentators have noted a rising populism on both the left and right, with Republican contender Rand Paul recently saying that the GOP "cannot be the party of fat cats, rich people and Wall Street."
This may all amount to nothing. But it's instructive to remember that Congress passed two major batches of financial regulation in response to the Great Depression, one in 1933-1934 and another in 1940. There's no reason Congress couldn't revisit or expand upon the Dodd-Frank legislation in the coming years. If they do, the prevailing public opinion of banks will help determine if any legislation is constructive or punitive for the industry. Even without new legislation, public opinion will undoubtedly influence the aggressiveness of regulatory bodies like the Consumer Financial Protection Bureau.
Bank leaders know, or at least say they know, that they have a problem. In fact, a Deloitte survey had financial services executives ranking reputation as the single biggest threat to their business.
That's why it's surprising that so many leaders have repeatedly undermined their bank's reputations by saying exactly the wrong thing at the wrong time. In the last few years, majorindustry leaders have made remarks that were widely construed as tone deaf, complacent, insensitive or completely dismissive of bad behavior. Goldman Sachs CEO Lloyd Blankfein's offhand comment that banks are doing "God's work" and JP Morgan Chase CEO Jamie Dimon describing the London Whale trading scandal as a "tempest in a teapot," come to mind.
It's hard to overstate how damaging this is.
Reputation is an amorphous mix of what you do and what you say, and these unforced verbal errors reinforce every bad stereotype about banks and their leadership, while overshadowing anything good a bank may do to prove it can play a constructive role in the economy.
Of course, the challenge for bank leaders isn't just to avoid verbal gaffes. It's to demonstrate an understanding that, like it or not, the public expects them to have broader responsibilities than just hitting their earnings targets. A century ago, during another time of public opprobrium of banks, the industry paper American Banker wrote that "the banker must be something more to his country and his community than a loan agent and a merchant of exchange"
Ultimately, bank leaders need to start embracing and explaining their responsibility as public custodians of the economy. If they don't reimagine the scope of their jobs, they may have a rude reimagining forced upon them by policy makers and regulators.
Though public confidence in banks has been declining for years, it isn't a permanent condition. Canadians actually like and trust their banks. A few decades ago, so did most Americans.
But this is a long game. In the wake of Barclays' involvement in the LIBOR-rigging scandal, its new CEO Anthony Jenkins said he thought it could take ten years for the bank to repair its reputation. U.S. banks and their leaders have a similarly steep road ahead.
They've got to prove - in words and deeds - that the public can trust banks again. And they've got to start doing it now.
Commentary by Ryan Clancy, head of the executive-communications practice at FTI Consulting, where he advises leaders on communications strategy and thought leadership. He previously served as a speechwriter in the Obama administration for Vice President Joe Biden and Commerce Secretary Gary Locke. Follow FTI on Twitter @ FTI_SC.