[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/fip/fednrp/9815.html
   My bibliography  Save this paper

Risk and the democratization of credit cards

Author

Abstract
The dramatic rise in credit card charge-offs in the midst of a vigorous expansion suggests that bank card borrowers have become inherently riskier. This paper investigates how the mix of credit card borrowers has changed in recent years, and how those changes affect delinquency risk. The new card holders seem riskier along several dimensions. They tend to earn less, and as a result, they owe more relative to income. This rise in debt burdens almost certainly contributed to the rise in charge-offs, since debt burdens are a key determinant of delinquency risk. Card holders are also more likely to work at relatively unskilled blue collar jobs. This occupation shift may also have contributed to the rise in charge-offs, since delinquency rates are higher in these occupations, perhaps because income is more cyclical. Some of the personal characteristics and attitudes that have changed, such as marital status and job tenure, also imply somewhat higher risk.

Suggested Citation

  • Sandra E. Black & Donald P. Morgan, 1998. "Risk and the democratization of credit cards," Research Paper 9815, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednrp:9815
    as

    Download full text from publisher

    File URL: https://www.newyorkfed.org/medialibrary/media/research/staff_reports/research_papers/9815.html
    Download Restriction: no
    File URL: https://www.newyorkfed.org/medialibrary/media/research/staff_reports/research_papers/9815.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Arthur B. Kennickell & Martha Starr-McCluer & Annika E. Sunden, 1997. "Family Finance in the U.S.: Recent Evidence from the Survey of Consumer Finances," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 83(1), pages .1-24, January.
    2. Elizabeth Laderman, 1996. "What's behind problem credit card loans?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jul19.
    3. Donald P. Morgan & Ian Toll, 1997. "Bad debt rising," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 3(Mar).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sougata Kerr & Lucia Dunn & Stephen Cosslett, 2004. "Do Banks Use Private Information from Consumer Accounts? Evidence of Relationship Lending in Credit Card Interest Rate Heterogeneity," Working Papers 04-08, Ohio State University, Department of Economics.
    2. Elizabeth Schmitt, 2000. "Does rising consumer debt signal future recessions?: Testing the causal relationship between consumer debt and the economy," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 28(3), pages 333-345, September.
    3. John Whitley & Richard Windram & Prudence Cox, 2004. "An empirical model of household arrears," Bank of England working papers 214, Bank of England.
    4. Kerr, Sougata & Dunn, Lucia, 2008. "Consumer Search Behavior in the Changing Credit Card Market," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 345-353.
    5. Lucia Dunn & TaeHyung Kim, 1999. "Empirical Investigation of Credit Card Default," Working Papers 99-13, Ohio State University, Department of Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sandra E. Black & Donald P. Morgan, 1999. "Meet the new borrowers," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 5(Feb).
    2. Lucia Dunn & TaeHyung Kim, 1999. "Empirical Investigation of Credit Card Default," Working Papers 99-13, Ohio State University, Department of Economics.
    3. John Whitley & Richard Windram & Prudence Cox, 2004. "An empirical model of household arrears," Bank of England working papers 214, Bank of England.
    4. John Geanakoplos & Olivia S. Mitchell & Stephen P. Zeldes, "undated". "Social Security Money's Worth," Pension Research Council Working Papers 97-20, Wharton School Pension Research Council, University of Pennsylvania.
    5. John Geanakoplos & Olivia S. Mitchell & Stephen P. Zeldes, "undated". "Would a Privatized Social Security System Really Pay a Higher Rate of Return?," Pension Research Council Working Papers 98-6, Wharton School Pension Research Council, University of Pennsylvania.
    6. Jeremy Berkowitz & Richard Hines, 1998. "Bankruptcy exemptions and the market for mortgage loans," Finance and Economics Discussion Series 1998-07, Board of Governors of the Federal Reserve System (U.S.).
    7. Julio J. Rotemberg, 2007. "Minimally altruistic wages and unemployment in a matching model," Working Papers 07-5, Federal Reserve Bank of Boston.
    8. Baxter, Marianne, 2002. "Social Security as a financial asset: gender-specific risks and returns," Journal of Pension Economics and Finance, Cambridge University Press, vol. 1(1), pages 35-52, March.
    9. U. Sacchetti, 1999. "Whither the US economy?," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 52(208), pages 69-94.
    10. Donald Morgan & Kevin Stiroh, 2001. "Market Discipline of Banks: The Asset Test," Journal of Financial Services Research, Springer;Western Finance Association, vol. 20(2), pages 195-208, October.
    11. Bernardino Adao & Andre C. Silva, 2017. "Sub-optimality of the Friedman rule with distorting taxes," Nova SBE Working Paper Series wp623, Universidade Nova de Lisboa, Nova School of Business and Economics.
    12. Tom Krebs & Moritz Kuhn & Mark L. J. Wright, 2015. "Human Capital Risk, Contract Enforcement, and the Macroeconomy," American Economic Review, American Economic Association, vol. 105(11), pages 3223-3272, November.
    13. Timm Bönke & Markus M. Grabka & Carsten Schröder & Edward N. Wolff, 2020. "A Head‐to‐Head Comparison of Augmented Wealth in Germany and the United States," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(3), pages 1140-1180, July.
    14. Sherrie L. W. Rhine & William H. Greene & Maude Toussaint-Comeau, 2006. "The Importance of Check-Cashing Businesses to the Unbanked: Racial/Ethnic Differences," The Review of Economics and Statistics, MIT Press, vol. 88(1), pages 146-157, February.
    15. Stephan Meier & Charles Sprenger, 2007. "Impatience and credit behavior: evidence from a field experiment," Working Papers 07-3, Federal Reserve Bank of Boston.
    16. Edward Simpson Prescott & Daniel D. Tatar, 1999. "Means of payment, the unbanked, and EFT '99," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 49-70.
    17. Bostic, Raphael W & Surette, Brian J, 2001. "Have the Doors Opened Wider? Trends in Homeownership Rates by Race and Income," The Journal of Real Estate Finance and Economics, Springer, vol. 23(3), pages 411-434, November.
    18. Fabio Panetta & Dario Focarelli, 2003. "Are Mergers Beneficial to Consumers? Evidence from the Italian Market for Bank Deposits," CEIS Research Paper 10, Tor Vergata University, CEIS.
    19. Albanesi, Stefania, 2007. "Inflation and inequality," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1088-1114, May.
    20. Joanna Stavins, 1999. "Checking accounts: what do banks offer and what do consumers value?," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 3-14.

    More about this item

    Keywords

    Credit cards; Risk;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fednrp:9815. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Gabriella Bucciarelli (email available below). General contact details of provider: https://edirc.repec.org/data/frbnyus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.