How Could Bank downgrades affect you?

Friday, July 6th, 2012

A major bank’s credit rating cut is like a snowball – draws in the customers, public and financial markets.

Downgrading of the world’s largest banks is almost sure to cause wide concern. People worry about the safety of their money, which is good, but the real costs may be hidden. Most deposits are perfectly safe, but the downgrades could hurt in other ways: banks may increase fees and might be unwilling to lend, which could affect mortgages, credit cards and even the job market.

The downgrades come at a delicate time for banks. An avalanche of new regulations adopted after the financial crisis has swept away many of the fees they charged on credit cards and checking accounts. Banks are also forbidden to make profitable bets in the stock and bond markets.

So banks are going to extract revenue from the consumers in any way, shape or form. They are now trying to squeeze income from any place they can. Once free basic services, such as account check, a bank statement, canceling a check, now cost money. The list of services continues and existing fees might climb up further and new ones could appear.

The downgrades could ultimately increase the banks’ cost of borrowing in financial markets because the investors will demand more interest lending the banks money. Though, it can appear that the cost of borrowing won’t be affected immediately.

The downgrades suck capital out of banks by making the large banks sell insurance to investors to protect them from losses on bonds in case of a default. The downgrades will also force the banks to set aside billions of dollars in additional reserves because the debt they are insuring has suddenly become riskier. This will result in adding money to reserves and reduce the amount of capital that banks have to lend.

Even now this capital is extremely tight. The number of credit cards issued by banks has dropped because they won’t issue cards to people with poor credit. According credit reporting agency TransUnion estimation, more than 8 million people left the credit card market between 2009 and 2010.

Eventually, this will swipe away all the advantages that banks have over other financial companies as banks have less capital to get the best innovations.

Latest Credit Card Issuers News

Tuesday, December 6th, 2016
It seems that people are always looking for an easier and more convenient way to pay for their purchases. Still, it’s taken some time for folks to get comfortable using their ...
Wednesday, June 22nd, 2016
More and more people are finding out something that used to be difficult to find out—at least for free. Credit scores used to be top-secret and hard to get your hands on, unless ...
Wednesday, January 20th, 2016
Imagine carrying just one credit card with you and earning rewards that you can trade in for free vacations. WorldVentures DreamTrips is teaming up with Nxt-ID to do just that.
Saturday, November 28th, 2015
Good news for U.S. Bank customers: the company has a new online tool to help consumers make savvier choices about personal finances.
Thursday, June 11th, 2015
Discover is going to allow their cardholders to make contactless payments at participating merchants through Apple Pay beginning this fall.
Best Credit Offer
Click the Compare link to compare the checked cards side-by-side at the comparison table.
Consumer Rating: 5 / 5
Pacific Credit Group Emporium Black Card
Copyright © 2001-2016 BestCreditOffers.com All Rights Reserved.

* The BestCreditOffers.com.com webpage is a free service and an information resource for credit cards and financial products and services available to eligible United States consumers. BestCreditOffers.com.com does not offer any warranties and is not a direct service. There are no guarantees for approval or offers when applying for a credit card. Please refer to the application if you would like more information on each credit card. When you click "Apply" for a particular credit card, please take the time to review the terms and conditions of the product/service at the issuer's website. All logos on the BestCreditOffers.com.com website are property of their respective owners.

BestCreditOffers.com makes every effort to keep information up to date and accurate. However, the information regularly changes and is presented without warranty. Therefore, we strongly recommend all our readers to visit the credit card application page by clicking "Apply Online!" button to review the detailed credit card's terms and conditions. Note that BestCreditOffers.com may be compensated by the credit card issuers when the readers apply for a credit card through this site.

BestCreditOffers.com is an independent, advertising-supported website which receives compensation from the credit card issuers and companies whose offers appear on the site. Compensation may impact how and where products appear on our site, including, for example, the order in which they may appear on the site pages. BestCreditOffers.com does not review or list all available financial or credit offers.

User Generated Content Disclaimer: These responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.