WASHINGTON - Consumer debt and subprime lending have the Federal Deposit Insurance Corp. worried.
In a report issued Thursday, FDIC analysts said U.S. consumers are financing their free-spending ways largely by borrowing against their homes or retirement accounts.
If interest rates were to rise or equity prices sink, the analysts said, many borrowers could fall behind on their debt payments, a development that would hurt banks.
At the same time, a growing proportion of consumer borrowers is resorting to high-interest subprime loans.
Such loans have much higher default rates, servicing costs, compliance risks, and liquidity risks than do prime loans, the FDIC said in its quarterly assessment of emerging risks and regional conditions.
"We see some significant risks on the horizon," FDIC Chairman Donna A. Tanoue said in a statement.
"Bankers need to take action now to make sure they can manage these risks if the economy becomes less favorable."
A copy of the FDIC's "Regional Outlook" can be found on the Web at http://www.fdic.gov/bank/analytical/regional/
