European Financial Crisis Creates Debt-Ridden World

Crisis management by the European continent and crisis mismanagement by a leading U.S.-based financial institution provides the first of a six-part series examining how corporate crises impacted U.S.-based business operations during 2011.

When conceiving the “Top 5 Corporate Crises of 2011” survey, Evolving World Communications (EWC) and the Institute for Crisis Management (ICM) strategy was to post the survey, write summary blog posts like this one about the individual crises and finally communicate survey results near the end of January — an approach that seems simple enough.

Now comes the hard part. As a non-finance professional, it is likely my knowledge base is incapable of explaining the potential contagion risk for U.S. banks stemming from the European debt crisis in roughly 300 words. And, if blog posts serve as a viable indicator, I struggled to locate one written by a finance professional that met the dual standard of being less than 1,000 words and didn’t make my eyes glaze before the end of the second paragraph.

So I did what valuable public relations professionals do when faced with a challenging question. That is, break the issue down into its essential facts. After all, PR pros employed by financial institutions and U.S.-based publicly traded corporations surely constructed a crisis response that included as a key component educating investors, depositors, customers and suppliers about how the European problem may impact American operations. If they did so, clear messaging from those crisis plans remain a mystery and largely unavailable to the public.

I broke through the haze via comments from William Dudley, president & CEO of the Federal Reserve Bank of New York, in testimony on December 16, 2011 before the House Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs, Committee on Oversight and Government Reform. Using the statement he submitted to the public record as a guide, the essence of Dudley’s personal views on likely outcomes for U.S. businesses are:

1. Less demand for U.S. goods and services exported to Europe thereby creating a negative impact on U.S. jobs.
2. The exposure of the U.S. banks to the overall European banking system could place greater pressure on U.S. banks’ capital and liquidity buffers.
3. In the extreme, U.S. financial markets could become so impaired the flow of credit to households and businesses could completely dry up.

The London TELEGRAPH published an interactive look at the European Debt Crisis.

A humorous look at the debt crisis from a British perspective is available by clicking here.

Bank of America Debit Card Fee Snafu

A corporate action that spurred a crisis but didn’t humor Bank of America depositors occurred when the company announced plans on September 29 to charge debit card holders a $5/month fee regardless if the card was used once or multiple times. Account holders who used the card solely at BoA ATM machines were excused from paying the fee.

According to the NEW YORK TIMES, the new fees were part of an effort by the banks to raise revenue lost elsewhere. On Oct. 1, a new federal rule, known as the Durbin Amendment, went into effect that limited fees banks can levy on merchants every time a consumer swiped a debit card for a purchase. The new limit is expected to cost the banks about $6.6 billion in revenue a year, beginning in 2012, according to Javelin Strategy and Research. That comes on top of another loss, of $5.6 billion, from new rules restricting overdraft fees, which went into effect in July 2010 and were widely seen by the public and legislators as onerous.

Depositors and the public at large possessed no interest in listening to a rationale for the fee request; it met BoA’s announcement with a thunderous ‘NO,” using social media postings to express their vociferous anger.

Ben Rattray, founder of Change.org, which allows consumers to start grassroots campaigns on its online platform, cited how his site, along with Facebook and Twitter, now provided a voice to influence corporate policies. Many disgruntled BoA account holders used Rattray’s site to sign up for “Bank Transfer Day,” where customers moved their accounts to community banks and credit unions.

These small community banks and credit unions became the direct beneficiary of the public disenfranchisement though Web sites, such as findabetterbank.com, that enabled users to select local institutions suitable to their banking needs without being charged the numerous fees imposed by national banks.

On October 31, BoA tossed the plan overboard but not until Wells Fargo, JPMorgan Chase, SunTrust and Regions Financial all announced plans during the preceding week to kill a similar fee.

EWC and ICM seek to learn your 2011 Top 5 Corporate Crises. Vote at http://tinyurl.com/828uuqg.

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