Rising delinquency rates and personal bankruptcies are driving the nation's largest banks to pull back from the consumer credit market.
Preliminary results of a survey by the Office of the Comptroller of the Currency show that more than two out of five of the largest national banks have tightened their underwriting for credit cards, the area of biggest concern.
Comptroller Eugene A. Ludwig plans to cite the findings today at a hearing of the Senate Banking Committee's financial institutions subcommittee. The study could allay mounting fears among policymakers that consumer credit quality is shaping up as the industry's next big problem.
The study found a general tightening of standards among 83 large national banks, said Scott Calhoun, Mr. Ludwig's newly appointed risk czar.
"Delinquencies, personal bankruptcies, and all-time-high levels of personal debt have concerned bankers, and when you start putting these things together, it's causing them to have a much more guarded outlook for the consumer credit business," Mr. Calhoun said in an interview Tuesday.
"We're seeing a definite tightening of credit standards in these areas," he said.
Of the 29 largest national banks, about 43% have tightened underwriting standards for credit card lending, said Mr. Calhoun, the deputy comptroller for risk evaluation. About 10% have loosened standards, he said, and the rest did not significantly change their criteria.
"With industry loss rates in the credit card area running as high as 6%, credit card operations have to become more careful," said Martin F. Neilson, director of risk management for the national consumer assets group at BankAmerica Corp.'s flagship subsidiary.
Banks also are reining in their credit card telemarketing operations, he noted.
"The survey results show that banks are responding appropriately to market conditions," said Pamela Martin, manager of regulatory relations at Robert Morris Associates, "and that they are prepared to handle rises in delinquencies or bankruptcies."
This is the second survey the Comptroller's Office has done of bank underwriting practices. The results show a significant change from a survey that covered May 1994 to May 1995. The OCC found then that competition had driven many banks to ease consumer loan underwriting standards.
The OCC's latest survey, spanning May 1995 to May 1996, will not be released until the end of August. However, agency officials pulled together some preliminary information on consumer credit so Mr. Ludwig could present it at today's hearing.
The agency did not break out data on credit card underwriting standards in last year's report.
National banks also have shown a marked turnabout on home equity lending criteria since the last survey. In the latest report, just 20% of the national bank examiners contacted said the institutions they supervise had loosened lending standards, compared to 48% in last year's survey.
James Chessen, chief economist for the American Bankers Association, said it's clear that banks are increasingly concerned about consumer debt problems.
From Dec. 31 through May 31, Mr. Chessen said, outstanding consumer credit declined by $3.4 billion, to $504 billion.
"Banks are very sensitive to these problems," he said, "and they are actively looking to reduce their exposure."
The underwriting survey was done by the OCC's National Credit Committee, a group of the agency's most experienced credit analysts. Mr. Ludwig formed the committee in October 1994 to keep tabs on lending practices at national banks.
A big issue in last year's survey was exceptions national banks were making to their underwriting policies.
Examiners reported that national banks had adequate systems to approve and report these individual exceptions to senior management. However, the OCC was concerned that many banks lacked adequate ways to track the overall number of exceptions granted.