Media Reports of European Bank Strife Could Impact U.S. Consumer Confidence

Reports of the financial upheaval in Europe have begun describing the situation as a “bank run,” leading to concern that an already volatile situation could be exacerbated by needless public alarm.

The story is a relatively dry one so far, painting a picture in numbers and graphs of a gradual flow of deposits from the banks in countries like Spain, Italy, Greece, Portugal and Ireland into German banks. Gavyn Davies of the “Financial Times” gave a thorough account of the situation recently, but essentially, institutional investors have gradually been moving funds away from these countries as a strategic hedge against the possible breakup of the euro more than out of a fear of bank failure.

This slow-motion movement has accelerated recently, which has justifiably caused widespread concern and instigated discussions of the possible need for government intervention and response from policy-makers. However, the use of terms like “bank run” invoke images of Depression-era bread lines and furious, panic-driven withdrawals as consumers fear losing their deposits altogether.

Here is where the difficulty lies. “Bank run” is not an altogether inaccurate term to use in describing the situation in Europe, but it is one that carries a heavy weight with the public, especially when reports are largely brief and surface-level, omitting the details and leaving the potential effects up to the imagination.

There is, of course, nothing the United States credit union movement can do to significantly impact the situation in the eurozone or alter its possible impact on America’s financial services. However, this is a good time for credit unions to begin keeping a 24/7 focus on safety and soundness, particularly from a public relations standpoint.

“The situation in Europe and the irresponsible reporting that has accompanied it only reinforces our duty as credit unions to assure our members of the complete safety of their deposits and the soundness of our system,” said Northwest Credit Union Association (NWCUA) CEO John Annaloro. “It is difficult for the general public to know how this will impact them. But your average citizen—and your average credit union member—is not going to be impacted by Europe’s troubles unless media coverage incites needless fear in the U.S., which means that headline risk is real. We have a responsibility to protect our reputation and reassure our members, and we have yet another opportunity for growth, but it is extremely important that we do so responsibly without fanning the flames of Europe’s already volatile situation or creating anything resembling domestic panic.”

The Association will provide its member credit unions with precautionary talking points on this issue Friday morning. In general, credit unions are encouraged to stress the many positives about their origins and operations, including the safety that accompanies federal deposit insurance and the track record of being stable alternatives to banks.

“The first U.S. state credit union charter in 1908 was written to create an alternative to the commercial banking system, which was in turmoil following what was known as the Bankers’ Panic of 1907. The for-profit banking system has continued to be periodically unstable since, like from 1929 to the 1930s, again in the mid-1980s, and most recently in 2008-09,” Annaloro said. “The Federal Credit Union Act and most state charters were put in place immediately following the Great Depression. If consumers or the media start questioning the safety of their domestic deposits as a result of the situation in Europe, credit unions have an opportunity to remind the public that they were designed to be a safe, steady alternative to banks.  We have a 100-year track record as being the safe haven.”

American financial institutions also now have the benefit of simply operating with a different currency than the European banks, as the dollar has emerged as an established alternative to the euro.

“A key point for credit unions is that the U.S. dollar is once again the safe haven, and credit union members are protected not only by the federal insurance fund but by the fact that it is dollar denominated,” said NWCUA President Troy Stang. “For safety, soundness and preservation of capital, credit union deposits are indeed the safest of havens in these troubled global times. Credit unions don’t invest in the shaky international markets like major investment and global commercial banks, which is all the more reason for consumers to strengthen—not weaken—their credit union relationship. Our true strength is shown most clearly in times of economic uncertainty.”

While a European banking crisis with a technical run on deposits could create some unintended media problems in the Northwest, it is unlikely to have any tangible day-to-day impact. And it could equally provide a positive opportunity to capture market share, giving credit unions in the region another opportunity for growth not unlike the one that followed the United States Banking Crisis of 2008.


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Posted in Around the NW.