Banks Hoard Cash as Credit Card Defaults Rise


Zachary A. Goldfarb
Washington Post
October 16, 2008

Consumers are increasingly unable to pay off their credit cards, forcing banks to hoard cash to protect against future losses and lend to fewer people, according to reports yesterday from several of the nation’s largest banks.

  • A d v e r t i s e m e n t

These financial disclosures showed a spike in credit card loans going bad, putting further pressure on already-stressed balance sheets. J.P. Morgan Chase said the number of credit card loans in default rose 45 percent in the third quarter from the comparable period a year ago and predicted that default rates would sharply accelerate through 2009, with 7 percent of credit card loans going bad.

“We have to be prepared that it gets a lot worse,” J.P. Morgan chief executive Jamie Dimon said about the overall economic outlook.

Capital One, a credit card lender and bank based in McLean, announced rising default rates and delinquencies in its portfolio of credit cards and auto finance loans yesterday. The company said 6.34 percent of credit card loans went into default last month, up from 5.96 percent of loans in August. The company has said it expects default rates to rise to 7 percent next year.

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