New financial and investment protection laws as well better investment returns seem to be rebuilding confidence in the U.S. financial system. In fact trust in America's financial system has increased significantly in the past two years. Data from January 2009 showed that 20 percent of Americans trusted the financial system in the wake of the economic crisis, two years later trust has reached nearly 26 percent, according to the Chicago Booth/Kellogg School Financial Trust Index.

However, while trust and confidence are steadily increasing overall, the report also finds continuous doubt of mortgage lenders. The new data shows that even people morally opposed to strategic default said they would be more likely to default on their mortgage loan if they knew their lender or bank had been accused of predatory lending.

The Chicago Booth/Kellogg School Financial Trust Index is a quarterly look at Americans' trust in the nation's financial system, measuring public opinion over three-month periods to track changes in attitude. Co-authors of the report are Paola Sapienza, professor of finance at the Kellogg School of Management at Northwestern University, and Luigi Zingales, professor of entrepreneurship and finance at the University of Chicago Booth School of Business.

"The growing trust and optimism toward the financial system is consistent with a sense of economic recovery," said Sapienza. "According to our latest survey, factors driving this increase include more of a willingness to invest in the stock market and less fear of a drop. Plus, the Index shows that trust in banks has gained the most ground since the first issue of the Index – increasing by nearly 10 percentage points -- demonstrating that the banking industry's reputation is rebounding."

Growing Confidence in the Stock Market, Banks, Housing

According to the latest data, trust in the stock market continues to show dramatic improvement; in fact, 21 percent of people surveyed want to increase their investments in the market versus 14 percent in September 2010. Similarly, only 11 percent of investors now believe a significant drop in the market is very likely, down from 16 percent just three months ago.

The researchers also found a slight increase in the number of Americans who see the market as being overvalued (from 40 percent in September 2010 to 44 percent now), while fewer now view it as undervalued (35 percent in September 2010 to 31 percent in the most recent quarter). Trust in banks has also gone up from its lowest point of 33 percent two years ago to 43 percent today.

Homeowners are steadily gaining more confidence in the housing market and real estate prices compared to previous waves of data. For example, 54 percent of people surveyed this quarter forecast that prices will remain stable, a sharp increase over 46 percent in September 2010. Similarly, fewer respondents (22 percent) now believe that home values will decrease during the next 12 months (as compared to 31 percent three months ago).