There is a familiar ebb and flow that follows a banking crisis in the U.S. First, federal legislators impose, or at least propose, tighter regulation. Over time, banking interests lobby to have those regulations rolled back, often successfully. Then another crisis happens, and the cycle begins again.
In recent weeks, federal legislators have called for stricter oversight of midsize banks, typically those with between $50 billion and $250 billion in assets, following the collapse of Silicon Valley Bank and Signature Bank in early March. Congress has held hearings with lawmakers interrogating federal regulators on why they didn’t identify problems at the banks sooner. And the White House is pushing for more oversight.
Experimental survey research with more than 27,500 participants across six countries finds links between news coverage of financial scandals and stronger public support for more regulation following those scandals, according to a recent paper published in the American Journal of Political Science.
“While that connection between scandal, events and policy is well-documented, or better documented in the literature, the connection between media coverage — exposure of these scandals — with public opinion hasn’t been as clear,” says one of the authors, Jae-Hee Jung, a political science professor at the University of Houston.
Another of the paper’s authors, University of Oxford politics and public policy professor Pepper Culpepper, explains that most people are unconcerned with regulatory specifics, such as capital requirements, but many people “do have opinions about what should happen to banks that take advantage of consumers,” he says.
Those beliefs about regulation are shaped by several types of media narratives that go beyond partisanship, according to the study. Across multiple countries, survey participants who read about bank scandals agreed more strongly that banks should be regulated, regardless of whether participants self-identified as conservative or liberal and even when the article they read quoted a politician from an opposing political party speaking in favor of more regulation.
A prevailing notion in political science is that “left-wing voters are going to be looking for a left-wing cue and right-wing voters are going to be looking for a right-wing cue,” Culpepper says. “Probably before we did this work, many of our colleagues would have thought that those are the ones that are likely to be really significant, and quite partisan in the way that people respond.”
The current paper, “Banklash: How Media Coverage of Bank Scandals Moves Mass Preferences on Financial Regulation,” is part of a larger research project Culpepper leads and which is exploring how public opinion, media coverage and policy interact after a financial scandal or crisis.
Research design and findings
Across surveys and experiments conducted in 2019 and 2020, Culpepper, Jung and Taeku Lee, a professor of government at Harvard University, examined how news coverage of bank scandals affects public perception of regulatory policy, with 27,673 adult participants across Australia, France, Germany, Switzerland, the United Kingdom and the United States.
The news media and political landscapes of those countries differ, but they are similar in that “they matter for the politics of global finance,” write Culpepper, Jung and Lee. “They are home to more than half the world’s globally systemically important banks, and each country has experienced at least two prominent financial scandals since 2008.”
There are a few dozen banks around the world that, according to the Financial Stability Board, are “systemically important,” or too-big-to-fail, meaning in the event of a bank run or other liquidity crisis, national governments are very likely to bail them out to avert massive economic collapse.
Survey participants, primarily recruited through research firm YouGov, offered their views on banking regulation after reading news-style articles the researchers created about real financial scandals in each country.
In recent years, these scandals have included the 2010s Westpac money laundering scandal in Australia; in France, a Société Générale rogue trader who lost billions of euros in the late 2000s; Germany-based Deutsche Bank bribery schemes during the 2010s; tax evasion allegations against investment bank UBS in Switzerland; multiyear frauds at U.K. bank HBOS — later acquired by Lloyds Banking Group — which ruined numerous small businesses; and millions of accounts opened without customer approval at Wells Fargo in the U.S. during the 2000s and 2010s.
The researchers created five types of mock news articles, which they call “vignettes,” randomly assigned to participants:
- Scandal: Straightforward descriptions of a scandal without partisan bent.
- Left-partisan: Mock news stories of the scandal focusing on politicians of the country’s major liberal party calling for government action.
- Right-partisan: Mock news stories of the scandal focusing on politicians of the country’s major conservative party calling for government action.
- Capture: Stories that focus on how bank executives have “captured” institutions meant to regulate their industry, “such as through the revolving door between senior jobs in government and in banks,” the authors write.
- Victim: Dramatic, personal stories of individuals financially hurt by scandal.
“The vignettes that we use reflect these diverse depictions of bank scandals that exist in actual news coverage of the six countries we study,” the authors write.
The researchers wanted to see whether participants’ views about banking regulation changed after reading about scandals presented in those five frames. For comparison, the researchers directed some participants to read mock news articles about companies outside the banking sector or stories about banking unrelated to scandal — management strategies, for example, or stories praising bank leaders.
Participants were more likely to favor banking regulation after reading one of the five articles on bank scandals. This finding particularly held for participants from Australia, France, Germany and the U.S.
U.K. participants were most swayed toward favoring regulation by articles about regulatory capture — the “revolving door” between bank executives and government regulatory agencies.
In Switzerland, participants who read articles about scandal indicated increased support for regulation, but that change was not statistically significant.
Across countries, conservative and liberal voters favored more regulation even when presented with statements calling for government action from a politician unaligned with their own political views.
The articles casting bank executives in a positive light did not affect participants’ opinions about bank regulations.
Complex details, uncomplicated narratives
Part of the reason for the pro-regulatory reaction may have to do with the inherent nature of news stories about banking scandals, Culpepper and Jung explain.
On one hand, banking scandals are complex. They may center on executives and technical topics the general public has never had reason to know about.
Yet, these scandals lend themselves to simple storytelling rooted in familiar narratives of powerful people doing wrong and regular people suffering the consequences.
“This kind of issue can be cast in what political scientists call ‘valence language,’ which is basically language that casts things in terms of right and wrong,” Jung says. “In the area of banking and finance, when these scandals happen, they can be described in easy-to-understand language — valence language — and I think that is an important part of the media’s role in terms of making this typically difficult issue more digestible and relatable to the general public.”