Receiving Wide Coverage ...

Down, Up, and Down Again: The Dow Jones Industrial Average closed down 520 points, 4.62 percent, putting it to the lowest level since September 2010 and wiping out Tuesday's gains. The Post predicted "The dramatic reversal signals investors are likely to see more volatile trading in the days and weeks ahead as world markets struggle to digest the full ramifications of the European debt crisis." The Journal said that bank stocks led the way down. The paper added that the Federal Reserve Bank of New York has been ramping up the number of calls it makes to banks to ask about "the volatility in their stock prices." It noted that for the second time this week Bank of America shares fell more than most. Meanwhile, the Times said the stock market fluctuations are giving Americans flashbacks to the 2008 financial crisis. Wall Street Journal, New York Times, Washington Post

Wall Street Journal

"Heard on the Street" said the Fed's announcement Tuesday that it would keep interest rates low at least through mid-2013 hit banks' bottom line. With loan demand dropping, and another recession possibly slashing interest in borrowing even more, "banks could struggle to achieve even high-single-digit returns on equity."

Credit unions have petitioned the House for a hearing on proposed legislation that would more than double the amount a credit union could loan businesses. The credit unions, currently capped at lending 12.25% of total assets, are seeking to up that amount to 27.5%.

New York Times

The European debt crisis is taking its toll on the stocks of big American banks that have investment banking operations. Bank of America fell 11% on Wednesday, and Citigroup dropped 10.5%. Bank stocks have fallen about 30% since the beginning of the year. An FBR asset manager predicted analysts will cut their profit estimates for U.S. banks because of lower loan growth and narrower margins.

American banks disclosed some of their exposure to European banks, but the information is not up-to-date, and the figures are based on estimates of hedge positions. What's concerning to some analysts is how much exposure U.S. banks have to Italy. "If Italy goes, God help us all," said an unidentified person who was involved in the Federal Reserve's stress tests in early 2010. U.S. banks' exposure could be huge: CLSA estimated that Citigroup had $12.7 billion in Italian holdings as of July 13, much of it related to the Italian government.

Investors have been pouring money into the Swiss franc, even though they receive negative real interest rates for holding the currency. The Swiss central bank views the franc as overvalued and has been taking measures, like increasing the supply of liquidity, to try to weaken its currency.

Last year, the 25 biggest banks held 32% more in deposits than the top 25 in 2006 — but approved 30% less in Small Business Association loans. An SBA officials said one reason for the drop was that banks lost market share on a type of 7(a) loan during the economic crisis.

Washington Post

In an interesting corollary to the downgrade: Standard & Poor's cares what the U.S. government thinks of the agency — especially regarding its role and oversight. "S&P's parent company, McGraw-Hill, has spent more than $11 million on lobbying over the past 15 years, including at least $1 million on S&P-related legislation, according to an analysis of federal disclosure records by the Sunlight Foundation."

And yes, banks have had a rough go of it the past three years, despite the bailout. B of A's woes being of course the most extreme example. In a round-up of bleak opinions from analysts, the ubiquitous Chris Whalen observes: "If we [restructured banks] two years ago, we'd be done."

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