Weekly Wrap-up: Credit Unions Must be Part of the SolutionEven though the majority of credit unions in the U.S. are not directly involved in the problems caused by the "mortgage debacle," all credit unions should be part of the solution, says NCUA's Rodney Hood.
Hood, Vice Chairman of the national credit union agency, made the comment Thursday to a group of credit unions in New York. He emphasizes his trust and confidence in the credit union system. "With confidence in the financial health, transparency, and integrity of the credit union system, we can all move forward in helping credit unions remain viable and sustainable so that they can be there when their member owners need them," he says.
Assuring strong oversight and regulation of the industry, Hood adds that a national ad campaign about NCUA's Federal Insurance and credit unions' inclusion in the Emergency Economic Stabilization act as well as the NCUA's use of a new "Risk Focused Exam" preserves public confidence in the country's credit union system.
In other news of the week:
Industry Merger Mania
The latest in the battle over Wachovia is the Federal Reserve's statement on Thursday that rival suitors Citigroup and Wells Fargo "have indicated they will no longer seek injunctive relief" to prevent a sale. The court battle between the two banks over Wachovia that began last weekend was seen as having a negative effect on the stability of the industry. The Federal Reserve says it will immediately begin consideration of the filings submitted by Wells Fargo to approve its acquisition of Wachovia.
In the past month, the topography of the country's banking industry has changed considerably with the largest bank failure to date, Washington Mutual, and its sale to JP Morgan Chase; the conversion of the last two big investment banks, Goldman Sachs and Morgan Stanley, into bank holding companies; as well as other smaller institutions failing.
Banking failures aren't only a U.S. problem, as more than a handful of European and UK banks have been helped in the past weeks by their respective governments. Most recently, the fourth Iceland bank was taken over by Iceland's government, which itself has been shaken by the financial problems it faces.
Deposit Insurance Amount Upped
The FDIC upped the insurance amount on individual deposit accounts from $100,000 to $250,000. This move, seen in part to buoy consumer confidence in banks, was approved as part of the $700 billion bailout package approved by Congress. The increase is temporary and will go back to the $100,000 amount at the end of 2009. The NCUA will also increase member deposit insurance coverage for the same time period and the same amounts.
The Treasury also made the unprecedented move on Thursday and announced it will loan money directly to banks. This came after it said it would buy short term debt. It created the Commercial Paper Funding Facility (CPFF), to buy commercial short-term debt (three-month and asset backed commercial paper) to help provide liquidity in the credit markets that are being squeezed shut for many borrowers including small businesses and governments.
World Economy and Stock Markets
The $700 billion bailout package signed into law last Friday had little effect on the world's stock markets this week, as record losses racked up on all markets; the Dow has dropped 21 percent in 10 trading days, and losses add up to a whopping $8.3 trillion for U.S. markets. On Friday, the stock exchanges in Austria, Russia and Indonesia were forced to suspend trading after they were faced with a flood of selling. The rout was so intense on Australian markets that traders there have called it "Black Friday."
The frozen credit markets and a loss of confidence around the globe in the financial system caused the Federal Reserve and other central banks around the world to slash policy interest rates by Â½ point on Wednesday. Continued problems in credit markets caused concern that banks will run out of money. These fears have panicked investors to move out of stocks and into bonds and other less risky investments.
World Leaders React
On Friday, central bankers and finance ministers from the Group of Seven nations (Canada, France, Germany, Great Britain, Italy, Japan, and the United States) met in Washington to discuss the economic meltdown. President Bush was to make a statement in the morning about steps to stop the financial meltdown and solve the credit crisis.