The Blubber

The increase in credit card delinquencies seen in 2023 may continue into this year, posing a particular risk to smaller banks. According to a recent report from the New York Fed, delinquencies surged by over 50% last year, with total consumer debt reaching $17.5 trillion.

Credit card debt that moved into serious delinquency, defined as 90 or more days past due, amounted to 6.6% in Q4 2023, up from around 4% at the end of 2022. This means that for every $100 outstanding on a credit card bill, $6.60 is more than 90 days in default. Serious delinquencies have reached their highest level since 2009, during the Great Recession, according to research from TransUnion.

Overall, credit card debt increased by 14.5% from the same period in 2022, while household debt rose by a more modest 3.6% from a year ago.

Another area of concern is the deterioration in auto loans, where serious delinquencies rose from 2.22% to 2.66% over the same time frame. When auto loans approach the 90-day delinquency level, lenders may repossess vehicles, potentially causing transportation issues that could threaten jobs.

Brian Riley, Director of Credit Payments & Co-Head of Payments for Javelin Strategy & Research, warns that there are several challenges facing credit card issuers. "Although there are indications that interest rates will not go higher and perhaps begin to fall, they will not fall as quickly as they rose," said Riley. "This means that creditors will have to face continued stress for months to come."

Smaller institutions need to be especially cautious. "In 2023, we saw top issuers charging off 3.36% to bad debt in credit cards," Riley said. "Smaller issuers were more than twice that, at 8.5%. Top issuers passed their Dodd-Frank Stress tests, but smaller banks are not subject to this rigor. Overall, we say watch for an increase in delinquency as 2024 progresses and particularly keep an eye on smaller financial institutions as they weather the storm."