Business

Published — August 4, 2011 Updated — May 19, 2014 at 12:19 pm ET

U.S. stock market plunge followed Financial Stability Oversight Council warning

Traders on the floor of the New York Stock Exchange on Thursday, Aug 4, as the Dow Jones average plunged more than 500 points. Jin Lee/The Associated Press

Council’s recent report warned of threat to U.S. from European debt crisis

Introduction

In its first report to Congress, the all-star team made up of Washington’s top financial regulators recently warned that the United States faces potential losses connected with the European debt crisis.

Any assumptions of market stability, the Financial Stability Oversight Council said, should be met with “a heavy dose of skepticism.”

The council’s warning hit home on Thursday when the Dow Jones Industrial Average plunged nearly 513 points – the biggest tumble in the financial markets since the 2008 financial crisis — partly on fears the global debt crisis may hammer Italy and Spain into default. The European Union has already given financial aid to member countries Greece and Ireland, and some experts worry that additional rescue packages for Italy or Spain – or both – could be more than the EU can handle.

Other financial markets also reacted as gold briefly hit a record high and crude oil prices dropped $5 a barrel.

“We are continuing to be bombarded by worries about the global economy,” Bill Stone, chief investment strategist at PNC Financial, told the Associated Press.

The drop in the stock market represented a decline of more than 4 percent in the Dow for the day, the steepest point decline since Dec.1, 2008. During the past two weeks, the Dow has tumbled more than 10 percent.

Shares in some of biggest U.S. banks – Citigroup, Goldman Sachs Group Inc., Morgan Stanley and Wells Fargo & Co. — fell around 6 percent in Thursday trading. JPMorgan Chase & Co. shares were somewhat less battered, closing down less than 5 percent, while Bank of America Corp. fell a steeper 7 percent.

Institutional investors which sold shares in the stock market moved so much money into cash accounts at Bank of New York that on Thursday the bank said it would begin charging some clients a 0.13 percent fee to hold their cash.

“In the past month, we have seen a growing level of deposits on our balance sheet from clients seeking a safe-haven in light of the global interest rate and credit environment,” the bank said in a statement to The Associated Press.

“Investors are deciding that now is the time to take risk off the table,” said Brian Gendreau, market strategist for Cetera Financial Group. Gendreau said that some investors are now wondering whether stocks will have a prolonged slump similar to the aftermath of the Great Depression.

The first annual report issued by the Financial Stability Oversight Council, which is led by Treasury Secretary Tim Geithner, was largely ignored when it was released on July 26 with its wary assessment of global economic forces.

“The impact on the U.S. financial system of events in Europe depends on how the peripheral European sovereign debt crisis evolves and on the resilience of U.S. financial institutions and markets. If the crisis, now affecting Greece, Ireland, and Portugal, were to intensify significantly or spread more broadly across the euro area, then the impact on the U.S. financial system would be greater,” the report said.

“[Regulatory] supervisors have for some time been working with U.S. financial institutions to improve their ability to withstand a variety of possible financial contagion stress scenarios emanating from Europe,” it said.

The council was created by the Dodd-Frank financial reform law with the mission to identify “emerging threats to the stability of the U.S. financial system.” That authority includes recommending new regulations for big banks, as well as important non-bank financial institutions, but the law is not clear about what else the council is permitted to do in times of crisis.

Treasury Department spokesmen were not immediately available to respond to iWatchNews questions.

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sam fetters
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sam fetters

What do AT&T, Verizon and Crown Castle International Corp have in common? The largest institutional shareholders of each includes firms like: Vanguard, BlackRock, State Street (the “Big Three”), Invesco, Fidelity (FMR), JP Morgan, Wellington Management, Geode, T Rowe Price, Bank of America, and other of the largest money-management and investment firms, whom operate collaboratively (even comprising the largest shareholders of each other), forming virtual monopolies amongst the largest “competing” corporations, in most every single industry, via large share holdings. (source = http://investors.morningstar.com/ownership/shareholders-major.html?t=CCI) These are the same firms whom also largely own the third largest telecom, T-Mobile. The own the largest… Read more »

Jello Beyonce
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Jello Beyonce

I’ve a theory that the supposed “Trade Wars” and “sanctions” and political/military strife going on between the U.S., China, Russia, etc. are merely distractions, serving to divert attention away from the growing authoritarianism and Oligarchic control spreading across the globe. “Nationalism” is being used as a propagandist covert means of continued increasing Globalism. As this article states: “A Russian woman stood up to speak at one of these public meetings, and she said that when she lived in Russia, the government slam dunked her and she had no say,” King said. “Now she lives in the United States of America,… Read more »

ET69
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ET69

Marx was right about capitalism . Capital gets more and more concentrated in fewer and fewer hands. There is no way out of this greed. We need socialism!

Linda Gordon
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Linda Gordon

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Bob Frankston
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The real issue with 5G is that it’s an attempt to roll back the Internet and return to the telecom of the 1970s when the phone company controlled all.

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Controvery is the name of the game.