A report released on November 15th stated that most U.S. credit issuers saw a decline in delinquency rates between September and October (see article). Capital One Financial Corp. experienced the largest drop in delinquency rates out of the major U.S. credit issuers with a decline of 1.12% between September and October (see article). This news comes on the heels of a report issued by the Federal Reserve which stated that credit lines decreased by over $8 billion (see article). While the delinquency rates did not shrink for all banks, this report is still positive news for credit card issuers in the consumer banking industry.
This report is a sign that the credit card issuers could see an increase in revenue as the economy turns around. When the economy crashed, many cardholders were unable to pay off their balances which led to an increase in delinquencies, or late payments. Late payments are problematic for credit issuers because they are forced to cover the accounts with capital (see article). Falling delinquency rates mean that consumers are paying off their overdue balances, so credit card issuers don't have to worry as much about covering potential losses with capital. Now that the economy is recovering, cardholders are able to pay off their balances and spend more. An increase in spending on credit cards boosts the revenue of credit card issuers (see article). If this proves to be a long-term trend, credit card issuers could be on track for future profits in the long-run.
As for the consumer banking industry as a whole, this report indicates that the consumer banking industry appears to be recovering from the financial crisis. If the recovery continues, banks will begin to see long-term, stable growth which will propel the industry back to its former prominence.
-Justin Schaffer
http://online.wsj.com/article/SB10001424052748703670004575616751808746156.html
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