Bank Downgrades Threaten To Hit Funding
Credit cut ratings have a severe psychological affect on everybody. While banks get jittery, the effect gets reflected in market reactions. Stocks tumble and panic stricken investors pull out money from the market. But as lowering of credit rates impacts a banks freedom to raise money from the markets, they pass on the burden to the consumer. The consumer has to pay more for banking services. New charges are introduced and existing charges are hiked. With transactions becoming costlier mortgage and credit card dealings get affected the most. This in turn affects the job markets. Existing employment opportunities start shrinking and job creation becomes a near impossibility.
Credit rating cuts can make it harder to procure loans. Driven by the fear of uncertainty banks are no longer willing to take risks. Eligibility criteria for loans are raised. Thus more than two third of the population can no more aspire for loans. People with stable employment history and a host of other criteria can only expect loan approvals. Along with personal, home, car and travel loans, it becomes equally difficult to get credit cards. It is because of this that the number of credit card users fell by 9 million between 2009 and 2010. With rating cuts, markets become volatile and bond investors sell of bonds mostly at a loss to avoid further loss.
Analysts believe, things cannot have a free fall. In order to prevent further deterioration, the fed reserve has injected fresh round of stimulus and which may turn things around. Concerns about safety of personal savings are unwarranted because the Federal Deposit Insurance Corporation guarantees deposits up to $250,000.
Amidst the market volatility, the good news is that the stocks of downgraded banks rose slightly on Friday. So, there are reasons enough to keep ones fingers crossed.