Banks consider credit line cuts
Banks want to minimize credit risk, and one way to do that is by not offering so much credit in the first place. This could prove difficult for some consumers who are targets of a credit line cut. Ashley Milne-Tyte reports.
More on Investing, America's Financial Crisis
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Scott Jagow: This could grind consumer spending to a halt: Bank analyst Meredith Whitney predicts credit card companies will wipe out $2 trillion worth of credit lines in the next 18 months. More on that from Ashley Milne-Tyte.
Ashley Milne-Tyte: Banks want to minimize the risk of getting stuck with loans consumers can't repay. One way to do that is not to offer so much credit in the first place.
But Scott Hoyt of Moody's Economy.com says it's not necessarily that simple. He puts it this way: Say banks decide to cut the credit lines of people who max out their cards each month, but pay off a little each month, too.
Scott Hoyt: I mean someone who's carrying a balance and making regular charges, if they, you know, reduce that consumer's ability to carry a balance and to make charges, then they're cutting into their revenue streams. It's a balancing act that they have to carry out.
The other side of the balancing act is the risk that that consumer could stop making payments altogether. That's a risk that banks see increasing as the economy continues shaky and job losses threaten to force more consumers into living on credit.
In New York, I'm Ashley Milne-Tyte for Marketplace.
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From San Ramon, CA, 12/01/2008
I believe that banking institutions are more dangerous to our liberty than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around those banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. -- Thomas Jefferson
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