topic Re: Are there reserve requirements for banks that issue revolving credit via bank credit cards? in General Credit Topics

Are there reserve requirements for banks that issue revolving credit via bank credit cards?

midwestsunshine — Mon, 02 Mar 2020 19:48:24 GMT

I know that banks are required to maintain a reserve ratio of 10% of all checking deposits, but are free to lend out the balance. I deposit $100, bank keeps 10% on deposit with the fed & lends out the remaining $90. Money multiplier will ultimately turn my $100 deposit into $900 in loans & $100 in reserves etc...etc... But what are the requirements when cap1 gives me a credit card with a $10,000 limit? Are there any requirements for reserves against that liability. (I guess I should say asset since banks book deposits as liabilities & loans as assets. Also, is it true that there is a "firewall" between banking & credit card operation? Thanks.

Re: Are there reserve requirements for banks that issue revolving credit via bank credit cards?

Anonymous — Mon, 02 Mar 2020 20:09:57 GMT

Yes they do have to maintain a reserve against credit lines they issue - pretty sure it's also 10%.

Re: Are there reserve requirements for banks that issue revolving credit via bank credit cards?

FinStar — Mon, 02 Mar 2020 20:23:38 GMT

Yes, in the form of loan loss reserves.

There are established guidelines set by the Feds/OCC depending on the asset size of the particular FI.

Aside from the Glass-Steagall Act, and as far as a "firewall" between the lending side, investments, business and personal side of the overall banking relationship depends on the institution and how it's structured (LOB-wise). Inherently, it still has to abide by the privacy provisions set forth when you become a customer.

There are institutions that do not cross-share internal data while others have limited data-sharing in order to provide a better assessment of a customer's profile regarding individual products.

Re: Are there reserve requirements for banks that issue revolving credit via bank credit cards?

FinStar — Mon, 02 Mar 2020 20:24:33 GMT

@Anonymous wrote:
Yes they do have to maintain a reserve against credit lines they issue - pretty sure it's also 10%.

Those provisions vary by the asset size of the FI, so it's not necessarily 10%

Re: Are there reserve requirements for banks that issue revolving credit via bank credit cards?

Anonymous — Mon, 02 Mar 2020 20:25:34 GMT

@FinStar wrote:
@Anonymous wrote:
Yes they do have to maintain a reserve against credit lines they issue - pretty sure it's also 10%.
Those provisions vary by the asset size of the FI, so it's not necessarily 10%

Thank you for the clarification - guilty of regurgitating what I read in a couple posts lol

Re: Are there reserve requirements for banks that issue revolving credit via bank credit cards?

midwestsunshine — Mon, 02 Mar 2020 20:40:29 GMT

@finstar

Is it possible to know what the loan loss reserve requirement is for a particular FI, say cap1? Can I find this in a 10k or other public filing?

In the aftermath of 08', I recall reading that houses like Goldman etc... became banks of some sort. The idea was they would have access to the fed window for the purposes of borrowing/ liquidity in the event of another crisis. Am i understanding this correctly?

Re: Are there reserve requirements for banks that issue revolving credit via bank credit cards?

FinStar — Tue, 03 Mar 2020 00:35:21 GMT

@midwestsunshine wrote:
@finstar
Is it possible to know what the loan loss reserve requirement is for a particular FI, say cap1? Can I find this in a 10k or other public filing?

In the aftermath of 08', I recall reading that houses like Goldman etc... became banks of some sort. The idea was they would have access to the fed window for the purposes of borrowing/ liquidity in the event of another crisis. Am i understanding this correctly?

You can check the public guidance information that's available from the Federal Reserve. A specific lender's annual report can also be leveraged if you can dissect the data. You'd also need to have an understanding about CECL.

Here's a recent article that can provide some insight with regard to Capital One's recent LLR adjustments.

https://www.risk.net/risk-quantum/7112946/cecl-could-force-capital-ones-loss-reserves-up-40