The Federal Reserve conducts an annual stress test to determine if banks would have sufficient capital should certain adverse financial scenarios surface. The analysis from the most recent review shows that the nation’s largest bank holding companies would survive should a recession occur. However, the stress test also revealed that credit card debt is a cause for concern for Florida residents and others around the country.
The news that banks could survive a recession has resulted in many calling for banks to pay larger dividends and reduce regulation. These actions would create more risk for the banking industry. While these ideas are still being discussed by industry leaders, the Federal Reserve considers credit card debt to be considered in the several adverse scenarios of the stress test. In fact, credit card losses are up 9 percent since last year’s stress test, with losses of $100 billion projected.
The increase in losses could be explained in part by the rise in credit card balances. Those balances now total over $1 trillion and have increased 5.6 percent since last year. In addition, the delinquency rate is now at 2.4 percent. More lax lending standards have also contributed to the increase in losses. When considering all consumer loss categories, which also include losses from mortgages, HELOCs and other consumer loans, losses from credit cards account for 54 percent of the total.
Credit card debt is most costly for consumers. With interest payments and fees, some can easily get behind in payments, even with low balances. The risk for banks comes from the fact that there is no collateral with credit cards.
When Florida consumers are struggling with credit card debt, many may feel that there is no way out. An experienced bankruptcy attorney can help clients evaluate specific situations and recommend plans best tailored to their needs. A knowledgeable lawyer will work to help someone regain financial control of his or her life.
Source: businessinsider.com, “Here’s what could happen to credit card debt in another financial crisis“, Todd Richter, June 25, 2017