Credit Card industry may cut $2 trillion in consumer credit lines

December 7, 2008 by · Leave a Comment
Filed under: Industry News 

With our economic situation continuing its path of deterioration, it would would seem likely that many borrowers that were credit worthy are not in a much more dire situation and that in turns increases the liability risk default.  This just enhances why we need to promote savings and debt reduction as a national policy in this country.  If you have savings then the credit markets do not impact your ability to purchase goods.  This is a dramatic shift from our current consumer credit driven media culture.  With this reduction in purchasing power, we will see more losses in the markets as they price this in.

News:

The U.S. credit-card industry may pull back well over $2 trillion of lines over the next 18 months due to risk aversion and regulatory changes, leading to sharp declines in consumer spending, prominent banking analyst Meredith Whitney said.

The credit card is the second key source of consumer liquidity, the first being jobs, the Oppenheimer & Co analyst noted.

“In other words, we expect available consumer liquidity in the form of credit-card lines to decline by 45 percent.”

Bank of America Corp, Citigroup Inc and JPMorgan Chase & Co represent over half of the estimated U.S. card outstandings as of September 30, and each company has discussed reducing card exposure or slowing growth, Whitney said.

 

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.

 

A consolidated U.S. lending market that is pulling back on credit is also posing a risk to the overall consumer liquidity, Whitney said. 

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