Oct. 28 Update: Add Zions Bancorp to the List for Fed DollarsWith investors waiting anxiously to see if the Federal Reserve will cut its rates to below 1 percent, the world's stock markets surged in volatile reaction to that possibility.
The last time rates were at 1 percent was between June 2003 and June 2004. Asian markets climbed on the news, with Hong Kong up 14 percent and Japan's Nikkei up 6 percent. Global stock indexes bounced back from several days of steep losses, and in New York the futures market was sharply higher. Fears of a worldwide recession have created uncertainty and caused markets to shudder around the globe.
Economists says that lowering the lending rate is the least important step that the Federal Reserve can take, but getting the confidence between banks and freeing up existing money for lending is key. The further erosion in confidence has dampened the concerted efforts of central banks' lending rates. The threat of inflation is of less concern than the current crisis, say experts, because the low lending rates can also spur inflation.
Comparing the current stock market in historical terms, in the last week of October the Dow Jones industrial average is down almost 25 percent, and other indexes are down even further. The Dow is tracked to post its worst month ever on a point basis and fifth worst ever on a percentage basis, going back to records beginning in 1901.
On Tuesday, Zions Bankcorp says it has gotten preliminary approval from the U.S. Treasury for a $1.4 billion investment under the feds' capital purchase program. Zions joins the more than 19 regional and national banks that had lined up to get a piece of the $250 billion in the stock purchase program. Zions says it plans to use the money for "prudent lending" in the markets it serves and also says it is cutting its quarterly dividend by 26 percent.
On Monday, 10 regional banks announced they will receive nearly $18 billion from the same fund. Two Ohio-based banks, Key Corp and Huntington Bancshares, will get $3.9 billion. Other banks receiving funding include Capital One Financial Corp., Valley National Bancorp, and three Southern based banking groups - First Horizon National, Regions Financial and SunTrust. Collectively they will receive $11.7 billion.
Provident Bancshares will also get bailout money, but would not say how much it is getting. Northern Trust and City National will receive a total of $1.9 billion.
Other banks say they will apply for bailout money. Fifth-Third Bancorp, a Cincinnati-based holding company says it has applied for $3.4 billion in aid.