110 posts on "Credit"
January 11, 2022
How the Fed’s Overnight Reverse Repo Facility Works
Daily take-up at the overnight reverse repo (ON RRP) facility increased from less than $1 billion in early March 2021 to just under $2 trillion on December 31, 2021. In the second post in this series, we take a closer look at this important tool in the Federal Reserve’s monetary policy implementation framework and discuss the factors behind the recent increase in volume.
Posted at 7:00 am in Bank Capital, Banks, Central Bank, COVID-19 Facilities, Credit, Crisis, Fed Funds, Federal Reserve, Financial Institutions, Monetary Policy, Pandemic, Repo | Permalink
November 9, 2021
Credit Card Trends Begin to Normalize after Pandemic Paydown
Today, the New York Fed’s Center for Microeconomic Data released its Quarterly Report on Household Debt and Credit for the third quarter of 2021. Overall debt balances increased, bolstered primarily by a sizeable increase in mortgage balances, and for the second consecutive quarter, an increase in credit card balances. The changes in credit card balances in the second and third quarters of 2021 are remarkable since they appear to be a return to the normal seasonal patterns in balances. In a Liberty Street Economics post earlier this year we wrote about some demographic variation in these balance changes and the likely role of stimulus checks and forbearance programs in helping borrowers pay down expensive revolving debt balances. Here, we’ll take a fresh look at credit card balances and at the dynamics behind new and closing credit card accounts and limit changes, to examine how credit access and usage continue to evolve. The Quarterly Report and this analysis are based on our Consumer Credit Panel, which is itself based on Equifax credit data.
September 8, 2021
Does the Rise in Housing Prices Suggest a Housing Bubble?
House prices have risen rapidly during the pandemic, increasing even faster than the pace set before the 2007 financial crisis and subsequent recession. Is there a risk that another dangerous housing bubble is developing? This is a complicated question, and the answer has many components. This post, the first of two, provides a more detailed look at the recent rise in home prices by breaking it down geographically, with a comparison to the pre-2007 bubble. The second post looks at the potential risks to financial stability by comparing the currently outstanding stock of mortgage debt to the period before the financial crisis and projecting defaults should prices decline.
August 3, 2021
Forbearance Participation Declines as Programs’ End Nears
The Federal Reserve Bank of New York’s Center for Microeconomic Data today released its Quarterly Report on Household Debt and Credit for the second quarter of 2021. It showed that overall household debt increased at a quick clip over the period, with a $322 billion increase in balances, boosted primarily by a 2.8 percent increase in mortgage balances, a 2.2 percent increase in credit card balances, and a 2.4 percent increase in auto balances. Mortgage balances in particular were boosted by a record $1.22 trillion in newly originated loans. Although some borrowers are originating new loans, struggling borrowers remain in forbearance programs, where they are pausing repayment on their debts and creating an additional upward pressure on outstanding mortgage balances.
July 1, 2021
Credit, Income, and Inequality
Access to credit plays a central role in shaping economic opportunities of households and businesses. Access to credit also plays a crucial role in helping an economy successfully exit from the pandemic doldrums. The ability to get a loan may allow individuals to purchase a home, invest in education and training, or start and then expand a business. Hence access to credit has important implications for upward mobility and potentially also for inequality. Adverse selection and moral hazard problems due to asymmetric information between lenders and borrowers affect credit availability. Because of these information issues, lenders may limit credit or post higher lending rates and often require borrowers to pledge collateral. Consequently, relatively poor individuals with limited capital endowment may experience credit denial, irrespective of the quality of their investment ideas. As a result, their exclusion from credit access can hinder economic mobility and entrench income inequality. In this post, we describe the results of our recent paper which contributes to the understanding of this mechanism.
Posted at 7:00 am in Credit, Demographics, Financial Institutions, Household Finance, Inequality | Permalink
June 30, 2021
Hold the Check: Overdrafts, Fee Caps, and Financial Inclusion
The 25 percent of low-income Americans without a checking account operate in a separate but unequal financial world. Instead of paying for things with cheap, convenient debit cards and checks, they get by with “fringe” payment providers like check cashers, money transfer, and other alternatives. Costly overdrafts rank high among reasons why households “bounce out” of the banking system and some observers have advocated capping overdraft fees to promote inclusion. Our recent paper finds unintended (if predictable) effects of overdraft fee caps. Studying a case where fee caps were selectively relaxed for some banks, we find higher fees at the unbound banks, but also increased overdraft credit supply, lower bounced check rates (potentially the costliest overdraft), and more low-income households with checking accounts. That said, we recognize that overdraft credit is expensive, sometimes more than even payday loans. In lieu of caps, we see increased overdraft credit competition and transparency as alternative paths to cheaper deposit accounts and increased inclusion.
Banking the Unbanked: The Past and Future of the Free Checking Account
About one in twenty American households are unbanked (meaning they do not have a demand deposit or checking account) and many more are underbanked (meaning they do not have the range of bank-provided financial services they need). Unbanked and underbanked households are more likely to be lower-income households and households of color. Inadequate access to financial services pushes the unbanked to use high-cost alternatives for their transactional needs and can also hinder access to credit when households need it. That, in turn, can have adverse effects on the financial health, educational opportunities, and welfare of unbanked households, thereby aggravating economic inequality. Why is access to financial services so uneven? The roots to part of this problem are historical, and in this post we will look back four decades to changes in regulation, shifts in the ownership structure of retail financial services, and the decline of free/low-cost checking accounts in the United States to search out a few of the contributory factors.
Posted at 7:00 am in Banks, Credit, Financial Intermediation, Financial Markets, Inequality | Permalink
May 20, 2021
Consumer Credit Demand, Supply, and Unmet Need during the Pandemic
It is common during recessions to observe significant slowdowns in credit flows to consumers. It is more difficult to establish how much of these declines are the consequence of a decrease in credit demand versus a tightening in supply. In this post, we draw on survey data to examine how consumer credit demand and supply have changed since the start of the COVID-19 pandemic. The evidence reveals a clear initial decline and recent rebound in consumer credit demand. We also observe a modest but persistent tightening in credit supply during the pandemic, especially for credit cards. Mortgage refinance applications are the main exception to this general pattern, showing a steep increase in demand and some easing in availability. Despite tightened standards, we find no evidence of a meaningful increase in unmet credit need.
May 19, 2021
Keeping Borrowers Current in a Pandemic
Federal government actions in response to the pandemic have taken many forms. One set of policies is intended to reduce the risk that the pandemic will result in a housing market crash and a wave of foreclosures like the one that accompanied the Great Financial Crisis. An important and novel tool employed as part of these policies is mortgage forbearance, which provides borrowers the option to pause or reduce debt service payments during periods of hardship, without marking the loan delinquent on the borrower’s credit report. Widespread take-up of forbearance over the past year has significantly changed the housing finance system in the United States, in different ways for different borrowers. This post is the first of four focusing attention on the effects of mortgage forbearance and the outlook for the mortgage market. Here we use data from the New York Fed’s Consumer Credit Panel (CCP) to examine the effects of these changes on households during the pandemic.
May 12, 2021
Credit Card Balance Declines Are Largest Among Older, Wealthier Borrowers
Total household debt rose by $85 billion in the first quarter of 2021, according to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data. Since the start of the pandemic, household debt balances have increased in every quarter but one—the second quarter of 2020, when lockdowns were in full effect. The Quarterly Report and this analysis are based on the New York Fed’s Consumer Credit Panel, which is based on Equifax credit data.
RSS Feed
Follow Liberty Street Economics
