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
Dog-lovers can get checks or credit cards printed with pictures of adorable pups. If you’d rather be at the beach, you can carry a credit card picturing the waves and sand. And now sports fans can order a new credit card with the logo of their favorite teams and players.
Loyal JetBlue customers have another reason to use Chase credit cards: the banking giant and credit card issuer has announced that the JetBlue TrueBlue loyalty program is the newest Chase Ultimate Rewards partner, and cardholders will now be able to redeem their reward points for travel on the airline.
Good news for American Express Platinum cardholders who live or travel in the Denver area: American Express has just announced plans to add a Centurion lounge to the Denver International Airport (DIA). And it will be huge—over 14,000 square feet—making it the second-largest Centurion lounge location.
The Walt Disney Company and Chase Card Services recently announced that they will continue their longstanding relationship, extending their co-branded Disney Visa Card, Disney Premier Visa Card and Disney Visa Debit Card programs in a multi-year agreement.
According to the 2017 Direct Retail Banking Satisfactions study, Discover is the second of the nine participating U.S. direct banks, scoring 869 points out of 1,000, being one in three banks topping the industry average for overall satisfaction.
