Despite Washington’s last minute decision to raise the debt ceiling, the stock market has tumbled in the last week, leaving all sectors of the market questioning its financial stability. On August 8, 2011, the Dow plummeted more than 600 points as the market re-rated the U.S. growth outlook.
Bank of America was among those hardest hit. Forbes reported, “Bank of America was among the session’s worst performers, with shares being dumped amid a surge in volume. The bank is facing a $10 billion lawsuit from American International Group over mortgage-backed securities tied to its Countrywide and Merrill Lynch units. BofA’s stock was down a stunning 20.1%.”
However, last week the Wall Street Journal reported that not all banks have a negative outlook on the market. Reporter Francesco Guerrera said, “On one hand, the unexpected bounty provides them [banks] with cheap funding that can be put to work in the form of loans. At the same time, the new deposits swelled their liabilities (deposits are counted as liabilities because they will one day return to their owners)—raising the unwelcome possibility that regulators will force them to add more capital to their balance sheets.”
How is the current market and capital requirements affecting your institution? What would you do differently? Do you think the U.S. is headed for a double-dip recession? Leave us a comment below.