How Could Bank downgrades affect you?
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
Walgreens has recently announced its plans to enter the consumer financial services market. To be precise, the second-largest pharmacy store chain in the United States is going to start issuing credit cards and prepaid debit cards under its brand. The main reason for this expansion of the scope of activity is the losses incurred by […]
Very soon Apple fans will get an opportunity to purchase such devices as Mac, iPad, AirPods, the Apple Pencil, and more at a 0% interest payment plan. This weekend, Bloomberg shared the information that Apple Inc. was about to offer a 0% financial option on its Apple Card credit card by Goldman Sachs®. The new […]
In April, Mastercard conducted a global online survey aimed at studying changes in customer behavior during the COVID-19 outbreak. Now even going to the nearest supermarket for essentials may bode the risk of getting infected. Everyone seeks to be careful, observing hygiene measures to maintain health. Thus, it is natural that people’s buying habits have […]
The new COVID-19 virus had a significant negative impact on the economy of the whole world and the United States in particular. Many companies were forced to temporarily or even permanently close, thus leaving their employees with no jobs and livelihoods. However, fortunately, most major banks, lenders and credit unions have not left their customers […]
The two large regional banks, BB&T and SunTrust, are currently in a process of merging to create the sixth largest banking holding company in the United States. The new issuer, headquartered in Uptown Charlotte, North Carolina, was named Truist. According to the banks’ announcements, the merger is to bring more branches, ATMs and digital innovations […]