Photographer: Andrew Harrer/Bloomberg

U.S. Banks Have Been Hanging On to More Consumer Loans, S&P Says

  • Share of most consumer debts packaged into bonds has fallen
  • U.S. consumer obligations have risen $1.4 trillion since 2007

U.S. banks and other lenders have been hanging onto a higher proportion of their loans instead of selling them to investors, which means credit risk is building up in the banking system, according to S&P Global Ratings.

For many types of loans, the percent of consumer debt that banks had packaged into bonds to sell to investors is close to the lowest in at least a decade, S&P wrote. For example, just 13 percent of the nearly $1 trillion of outstanding U.S. credit card loans were securitized as of the second quarter, compared with 32 percent in 2007.

Lenders’ willingness to hold onto consumer debt including mortgages and student loans suggests they’re comfortable with the current risks in the area, S&P analysts led by Darrell Wheeler wrote in a note Thursday.

Overall, consumer debt levels are manageable for Americans now, even if interest rates rise and borrowers continue taking on more loans. “A mix of several economic factors” including consumer debt, interest rates, personal income and the unemployment rate would need to “progressively worsen” before consumer loan performance deteriorates, according to the analysts.

Consumer debt in the U.S. has been rising since the financial crisis as low global interest rates encouraged borrowing. Obligations peaked at $14.8 trillion in the first quarter of 2017, an increase of $1.4 trillion in the last decade, according to S&P’s analysis of data from the Bank for International Settlements. With rates low in the U.S. and other developed countries, the share of household income used to pay debt has declined since the financial crisis.

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