Friday, March 15, 2013

This Week in Bank Failures

Indications of inflation turned up in the latest economic reports in the United States and the United Kingdom. This is a favorable development for the banks. To state it as simply as possible, banks need more money to get themselves out of financial trouble, and inflation makes money easier to come by. The current inflation may not help, though. Most prices are being held relatively stable by consumers’ reluctance to pay price increases. At the same time, in a related matter, employers are extremely reluctant to pay employees even the current going rate for the kind of work they are hiring for. It looks like U.S. inflation would be 8 to 10 percent if not for these two factors.

There is a way in which inflation works against banks. Price increases prompt people to look for ways to economize, and banks would lose some of their customers and fees. At the same time, though, banks would have to pay their employees more. Thus, although inflation would be good for banks’ balance sheets, it would erode their income statements and force them to scale down faster than they are already doing.

The NCUA liquidated two California credit unions today: I.C.E. Federal Credit Union, 942 members, Inglewood, and Pepsi Cola Federal Credit Union, 558 members, Buena Park. The NCUA will reimburse members for their insured deposit accounts. It promises letters to members of the two credit unions next week. I.C.E. Federal Credit Union served employees of the city of Inglewood. Pepsi Cola Federal Credit Union served employees of the Pepsi Cola Bottling Company.