New Chicago Booth/Kellogg School Financial Trust Index Measures National Confidence in Financial System

As unemployment rates rise, the housing crisis
deepens and 401Ks continue to deplete, it should come as no surprise
that America's trust of its financial leaders and institutions has
plummeted. To study the financial implications of eroding trust, Paola
Sapienza (Kellogg School of Management) and Luigi Zingales (University
of Chicago Booth School of Business) have created the Chicago
Booth/Kellogg School Financial Trust Index, publishing the first wave
of results today. The accompanying research shows just how deep
America's declining trust runs and how strongly it contributes to the
country's financial problems.

Trust is a powerful
motivator of economic behavior, said Sapienza, Our previous research
and anecdotal evidence suggest that lack of trust can have paralyzing
effects on financing and investments. We developed the Financial Trust
Index to measure this often ignored economic indicator and gain insight
into how the government's reaction affects the economy.

Financial Trust Index will measure public opinion every three months to
track changes in attitude over time and will provide a better
understanding of public trust, the absence of which, according to
Sapienza and Zingales, can bring even the richest, most advanced
economies to a grinding halt.


to formalize the relationship between trust and finance, Sapienza and
Zingales analyzed data from more than 1,000 American households,
randomly chosen and surveyed via phone over two weeks in late December,

  • Sapienza and Zingales found that only 22 percent of those surveyed currently trust the financial system.
  • Only
    12 percent of people trust the stock market. This trust is a strong
    predictor of individuals' intentions to increase or decrease their
    investment in the stock market over the next few months.
  • Similarly,
    they find that 11 percent of the respondents withdrew money from the
    bank and kept it in cash during the crisis. This behavior is highly
    correlated with the individuals' trust for banks.
  • They
    also found that trust in the financial sector has declined sharply over
    the last few months. When asked how their trust had changed over the
    past three months, respondents indicated a decrease across all
    categories, with perceptions of the stock market most soured.

of the goals of this research was to determine to what extent (if any)
the perception of current events and government policy impact the trust
people have in financial markets.

  • Respondents
    who identify the main cause of the 2008 financial crisis as lax
    government oversight (16 percent) or regulation (15 percent) exhibit
    the least trust in the market.
  • Levels of trust were
    also low among those who blamed companies, citing poor corporate
    governance (15 percent) or managerial greed (36 percent).

the heavy financial losses suffered can in part explain this reduced
trust, a crucial factor seems to be the way in which the government has

  • While the majority of
    respondents favor government intervention in financial markets, 80
    percent said the way it intervened has made them less confident in the
  • Even among the respondents who felt that
    federal intervention in the financial sector should increase, 75
    percent still lost confidence as a result of recent federal
    intervention.  This percentage rises to 95 percent among those who did
    not favor government intervention.

other words, even among investors who are ideologically favorable to
government intervention in financial markets, three out of four have
been made less confident by the way the government has intervened.

of the key factors undermining trust, said Zingales, is the
perception that the rules have changed in the middle of the game. The
government has done exactly this. What is most shocking is how deeply
this has affected the trust of the average American.

questions proved that coziness between government and the financial
industry, whether real or perceived, is clearly a problem in the eyes
of many Americans.  Respondents were asked to choose what motivated
former Treasury Secretary Hank Paulson as he engineered and executed
the government response. While 20 percent of respondents had no
opinion, the remaining 80 percent were evenly split. Half the group, 40
percent of the overall respondents, believed Paulson acted in the
interest of the country. The other 40 percent, however, believed that
Paulson's plan was meant to benefit Goldman Sachs, the investment bank
at which he served as chairman and CEO prior to being appointed

survey was conducted by Social Science Research Solutions (SSRS) using
ICR's weekly telephone omnibus service. Exactly 1,034 individuals were
surveyed over two weeks starting on December 17, 2008.  A fully
replicated, stratified, single-stage random-digit-dialing sample of
landline telephone households was used to identify survey subjects. 
Within each sample household, one adult respondent was randomly
selected using a computerized procedure based on the Most Recent
Birthday Method of respondent selection.  Once a respondent was
contacted, he or she was asked if they are the main or joint financial
decision makers in the household.  Only individuals replying positively
to this question were surveyed.

MORE INFORMATION: To see the full study, visit To arrange an interview, contact Meg Washburn or Barbara Backe at the contact information listed above.

To learn more about the Kellogg School of Management at Northwestern University, visit

To learn more about the University of Chicago Booth School of Business, visit