NEW YORK—More U.S. consumers are defaulting on their credit cards, but banks may be holding onto the riskiest loans instead of passing them off to investors, a new report suggests.
The credit card loans that banks bundle into bonds and sell to investors are outperforming the loans that lenders have held onto, reported Bloomberg, citing Barclays analyst Alin Florea’s recent report.
“On average, losses on loans the biggest banks packaged into bonds known as asset-backed securities are one percentage point lower than lenders' broader portfolios. Banks are writing off bad card loans on their books at the highest rate since 2012, and losses are outpacing those for auto and home loans,” stated Bloomberg.
The discrepancy may be explained by the more stringent requirements for the quality of loans that banks place into asset-backed securities, Florea wrote. For example, most of the securities require borrowers to have higher minimum credit scores than a bank might demand.
As CUToday.info reported here, several other recent reports have also raised concerns over credit card debt.