The political and policy consequences of the financial crisis
During the 2008 financial crisis, it was arguably the bank bailouts(opens in new window) that crystallised popular perception that the common good was being sacrificed in favour of high finance. Dissatisfaction with how politicians handled the crisis, exacerbated by subsequent austerity measures, inspired many protest movements, such as Occupy(opens in new window). “There was a widespread feeling that those in power were putting Wall Street’s interests ahead of Main Street’s,” says Pepper Culpepper from the Blavatnik School of Government(opens in new window), University of Oxford. “Attacking the banks who were ‘too big to fail’ became a trope for both populist movements and mainstream politicians.” The BANK-LASH project, which was funded by the European Research Council(opens in new window) and coordinated by Culpepper, wanted to quantify public anger, understand how media coverage affected public opinion and determine the impact of public opinion on policy. Surveys conducted in six countries in 2020 found that participants had clear views on financial regulation, generally wanting more. Experimental evidence showed that reading media stories about bank scandals markedly increased demands for regulation. “Financial scandals draw attention to finance and remind politicians of what the public wants, playing an important role in facilitating financial legislation,” adds Culpepper.
Interplay of public opinion, media coverage and policymaking
As Culpepper points out, there was no silver bullet available to governments to reform the banks that had failed so dramatically in 2007-2008. “All options, such as structural reforms, have trade-offs. As political economists, we are less concerned about the economic effects of reforms and more about who determines which policies get adopted,” explains Culpepper. Machine learning (ML) built around large language models (XLM-RoBERTa) was used to create the first comprehensive data set of newspaper coverage of banking in Australia, France, Germany, Switzerland, the United Kingdom and the United States. The ML models were taught to recognise key article classifications, by first being given a few hundred hand-coded examples, before automatically processing the remaining articles. The resulting data set of 500 000 multilingual news articles captures how banks were discursively framed during the global financial crisis and the following decade. Financial policymaking case studies were then developed and cross-referenced with the media data to assess how public debates fed into lawmaking.
Public interest presents a policy opportunity
In most countries, trust in banks remains low – lower than trust in tech companies, energy companies and even in government. However, trust in banks increased in all the countries surveyed in 2023 compared to 2020. Another key finding was that public opinion across the countries studied had influenced the reforms that governments had tried to adopt post-crisis. This resulted for example in ‘ring-fencing’ policies in the United Kingdom, separating retail and investment banking. “We also found that while financial scandals are the post-crisis engines of financial reform, they did not cause people to want more general market regulation or more redistribution,” says Culpepper.
Findings could feed into entrepreneurial policy playbooks
BANK-LASH’s findings demonstrate that the public continues to care about apparently technical issues that affect their lives, such as financial regulation, particularly in times of crises and scandals. “We repeatedly found that public opinion offers a powerful resource for policy entrepreneurs, but needs to be leveraged at the right time. Our work could inform strategies of capital markets reform to free up finance for initiatives associated with the European Green Deal(opens in new window), for example,” concludes Culpepper. The team currently have six papers on various aspects of the project pending, including one looking at how corporate scandals might change public opinion on other issues, such as climate change regulation.
