The freeze in consumer credit showed another major crack in the first quarter.
For the first time since early 2008, banks increased lines available on credit cards, according to data from the Federal Deposit Insurance Corp. Unused lines had been slashed by about a third, or $1.6 trillion, from a peak in June 2008 to $3.1 trillion at the end of last year (see charts).
The increase from there in the first quarter was modest at about 1.6%, or $50 billion, but was a hair too large to be explained alone by the $42 billion decline in receivables reported by the Federal Reserve. (Credit card lending typically declines sharply in the first three months of the year as account holders pay off holiday bills.)
The fall in receivables and the increase in lines together brought the overall credit utilization rate — or receivables as a percentage of the sum of receivables and unused lines — down to 19.7%, its lowest level since the end of 2008. (Seasonal spending patterns are clear in the utilization rate, which tends to rise sharply toward the end of the year as consumers spend against lines.)
Among the three largest credit card lenders, the shift has been uneven. Unused lines at JPMorgan Chase & Co. increased the most from the fourth quarter — by $19 billion, or more than double the amount that could be explained alone by a $9 billion decline in the company's receivables. At Bank of America Corp., unused lines increased by $1 billion, or less than a $7 billion decline in receivables. Citigroup Inc. actually cut unused lines in the U.S. by $5 billion even while its receivables declined.
To be sure, signs of a thaw in credit card lending have been about for some time.
The severest phase of line cuts appears long past, for one thing. More than half the reduction in lines occurred in the fourth quarter of 2008 and the first quarter of 2009, and the pace of withdrawal has moderated steadily.
Also, according to Equifax Inc., much of the decrease in lines (and the jump in utilization rates after the middle of 2008) was explained by the closure of accounts with no balances — more than 40 million in 2008 and 2009, compared with close to 300 million bank card accounts currently outstanding.
Further, year-over-year growth in the number of new bank card accounts reappeared in June 2010, according to data from Equifax, and account originations increased 2.8% from the year prior to 32.9 million overall in 2010.
Still, the pace of originations last year was less than half the levels posted in 2006 and 2007, and the total amount of credit lines extended under the new accounts fell 9.1% from 2009, to $124 billion. In other words, the size of individual new lines has been trending down, and the uptick in total lines in the first quarter was an important milestone. But while card lenders appear increasingly eager to expand portfolios, the level of uptake by consumers still struggling with damaged balance sheets remains to be seen.