As events in Washington, D.C., moved along Wednesday, Akron consumers did not appear to be worrying or panicking about the short- or long-term effects on their pocketbook or loans, said officials with area financial institutions.
“There isn’t anybody that doesn’t believe they’re not going to get this done. It is absolutely business as usual. Congress has done so many continuing resolutions that this is old news. It’s one of those things. Everything’s fine. It’ll be fine,” said Steve Hailer, president of North Akron Savings Bank, in an interview with the Beacon Journal.
Hailer said he doesn’t believe the U.S. government would go into financial default and thinks most people believe that, too.
“People are remaining calm and doing what they have to do,” said Hailer.
Hailer said he received a phone call from a senator last week asking his opinion and he replied everything was fine.
“I said I’m not worried about this. There’s nothing I can do about it; it’s at a different level,” he said.
While interest rates could go up as a result of a default, Hailer said they could also go down depending on economic events.
There have been no customers calling to request that loan applications be closed sooner to avoid any run-ups in rates, he said.
At GenFed Credit Union and Huntington Bank, officials said there was no unusual customer behavior.
“We have not had any panic,” said Kim Pallas, vice president and chief marketing officer of GenFed, which has 20,000 members and 11 branch locations. “I don’t think really the general consumer is equating it with their own personal finances.”
Christy Young, chief financial officer of GenFed, said a few branches reported that some consumers are being more conservative about their financial decisions, perhaps not making a specific purchase at this time.
“We haven’t seen them pushing on loans. If anything, [they’re] maybe a little leery and not wanting to do it now and wait,” Young said.
Young said it was difficult to predict whether interest rates would spike if the country would go into financial default.
“It’s uncharted territory and difficult to predict exactly what will happen. We’ve certainly seen immediate reaction, sometimes just the threat of it could cause a raise. I wouldn’t put it out of the realm of possibility,” she said.
GenFed is offering mortgage rates as low as 3.49 percent and vehicle loans as low as 1.99 percent, depending on the applicant’s qualifications, she said.
Rates have not changed much in the last 30 days and Young said the credit union also wouldn’t have a “knee-jerk” reaction to immediately raise rates if they do go up.
“We usually give it a little bit of time. They may turn around and go down in two to three days. If they were to spike and stay there for, say, one week, we would begin to consider changes,” she said.
William Eiler, spokesman for Huntington Bank, said, “We are not aware of any customer behavior outside the norm.”
The recent uncertainty hasn’t seemed to affect local homebuilders or remodelers.
Lynne Black, executive director of the Northeast Ohio chapter of the National Association of the Remodeling Industry, said homeowners have shown a reluctance to spend on remodeling projects for about three years, but she’s not aware of any further decline in business because of the federal government’s financial situation.
“The last three years have just been an uphill battle,” with remodeling businesses closing or going bankrupt because of slow sales and banks’ reluctance to lend. But she said she isn’t seeing any ramifications from the shutdown.
“It’s too brief. It’s too temporary,” she said.
Likewise, homebuilders aren’t reporting any significant recent changes in their business, such as customers delaying construction or rushing to lock in a mortgage rate, said Carmine Torio, executive vice president of the Home Builders Association Serving Portage & Summit Counties.
“I haven’t really seen any effect,” he said.
Possible financial fallout
If there were a federal default, the repercussions likely would be felt by everyone, said James Thomson, chairman of the department of finance at the University of Akron. Thomson, an economist, previously worked 26 years at the Federal Reserve Bank of Cleveland, including as vice president, research.
The repercussions on interest rates, market psychology and the impact on major financial institutions is hard to predict, Thomson said.
A default would push up interest rates and increase the cost of borrowing, Thomson said. Mortgage rates likely would rise because they are tied to the interest rates of 10-year Treasurys, he said.
How much disruption would depend on the duration of the default.
“It’s a bad, bad thing. It’s only going to raise borrowing costs in the economy,” he said.
A default likely would mean the Federal Reserve would keep its stimulus program of bond buying in place longer than it plans to, he said. A default also would trigger what are called credit default swaps, likely leading to losses at major financial institutions that have to fund the swaps, he said.
“I don’t know how much paper is out there and who is exposed to the default,” Thomson said.
Treasurys are used as collateral in a market that provides short-term loans to financial institutions, he said. That is about a $2 trillion market, he said.
“A freeze in that market would be a bit of a problem,” he said. “There are a lot of ripples and tentacles out there.”
Money market funds on average have about 35 percent of assets invested in U.S. Treasurys, he said.
When financial giant Lehman Brothers went bankrupt in September 2008, that caused the nation’s oldest money market fund, the Reserve Money Market, which owned Lehman debt, to fall into a troubled situation called “breaking the buck.” That meant a money market fund’s per-share price fell below $1. That in turn led to a freeze-up in a financial sector known as the commercial paper market and contributed to the onset of the Great Recession from 2007 to 2009, Thomson said.
Staff writers Betty Lin-Fisher, Mary Beth Breckenridge and Jim Mackinnon contributed to this report.