U.S. banks tighten credit card lending too late
NEW YORK (Reuters) – Closing millions of accounts, cutting credit lines and raising interest rates are just some of the moves credit card issuers are using to try to inoculate themselves from a tsunami of expected consumer defaults.
Still, the measures may fall short in containing a growing area of stress on banks’ balance sheets that some experts say could rival the subprime crisis.
“It’s so similar to the mortgage situation that it is shocking when you think about it,” former Goldman Sachs chairman John Whitehead said at the Reuters Global Finance Summit.
[...]“We’ve never had so much debt with the unemployment rate heading toward 8 percent,” said Walter Todd, a portfolio manager at Greenwood Capital Associates. “It’s hard to run a model because it has never happened before.”
Outstanding consumer credit has more than doubled since 1994, the last time unemployment was at current levels, and it is seven times higher than in 1982, when unemployment peaked at 9.7 percent. Some economists expect unemployment in the current slowdown to top out at 9 percent.
[...]According to a Federal Reserve report, 60 percent of banks surveyed had made it tougher to qualify for a credit card account since July, and half of them had lifted credit scores required on credit card accounts.
In addition, the number of credit card offers sent by mail has declined to its lowest point in over three years, according to research firm Mintel Compermedia.
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