Effects of Banks Downgrades
Effects of Banks Downgrades
Last Thursday, the credit ratings of 15 of the largest banks in the world were downgraded. While the deposits are completely protected, the downgrades could negatively affect people in other ways, for instance, an increase in the fees charged by the banks and more difficulty in getting a loan. Consequently, mortgages, credit cards and the job market can be affected as well.
According to Jim Nadler, chief operating officer at Kroll Bond Ratings Agency, it is common that people are anxious about their money’s safety before anything else. However, the actual costs might be concealed.
Unfortunately, the downgrades come to banks currently in a fragile situation. Several of the fees that are charged on credit cards and checking accounts have been removed because of the most recent rules adopted after the financial crisis. Moreover, banks are excluded from making profitable bets in the stock and bond market, which eliminates a lot of money in the form of trading income.
Together with the downgrades, current fees might increase even further and new ones could emerge.
The three top rating agencies, Moody’s, Standard & Poor’s, and Fitch, give ratings on a scale that corresponds to the ability of a company and state or local government to pay off their debt.
In addition, the downgrades will direct money into reserves and decrease the amount of capital that banks have to loan.
Americans applying for home mortgages, auto loans, and credit cards will experience the effects. Banks have been very selective regarding lending money, approving only those that have stellar credit or a steady employment history. Also, since people with bad credit are not given cards, the numbers of credit cards issued by banks have decreased significantly.
The effects of the downgrades will be felt even more by small and medium-sized businesses. They provide jobs for people within the country but recently, there are lesser jobs to offer. These businesses are finding it hard to get bank loans as well.
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