@KillingThemGingerly wrote:
Again, I think there is lots of evidence they don't operate very logically often at no fault of the person when it comes to AA. However, I admit the evidence is mostly anecdotal. Lots of posts on Reddit talking about this sort of thing as well though. Way more so than other banks, all with very similar stories. Maybe I am just a skeptic and not wanting to give a large regional bank the benefit of the doubt here.
I think "fault of the person" is the wrong way to think about credit.
I'm not sure I can explain this clearly, but let me try: A lot of people seem to think of credit as a system of individual moral judgment. When we suffer AA, we take it very personally. If we feel we did something wrong, we might feel contrite or defensive, but if we don't think we did anything wrong, we feel affronted. As if we've been accused of doing something wrong, when we're innocent. Good or bad, it's seen as a reflection on us, personally.
Except we know that's not how decisions are made when it comes to credit. Underwriters aren't trying to reward or punish people based on their behavior. No, they're trying to mitigate risk, and they're making decisions based on the statistical behavior of groups.
The conflict between those two ways of thinking is why we tend to think the penalty when someone pays off an installment loan is unjust -- we think we did something good by paying off one of our debts, so when we're punished instead of rewarded, it just feels wrong. But that's not how the lenders are thinking. They're looking at actuarial data that shows that people who have just paid off installment loans occasionally go on spending sprees and get themselves in trouble with credit, so to mitigate that risk they're making it slightly harder for people in a similar situation to get more credit. There's no intent to punish anyone, and it's based on what a small percentage of people in the same situation went on to do, instead of anything we did in particular.
The reason why FNBO cut all those credit lines is pretty clear: They saw the potential for bad economic times on the horizon, looked at the risk level of their aggregate exposure, and decided they needed to reduce it. This makes sense. CLs aren't free. Lenders have to put aside money to cover all that potential debt, which is dangerous when purses shrink or expenses jump. So how do they reduce their exposure? They came up with some criteria based on risk, perhaps based on a credit score, or DTI, or geolocation, or more likely a complex set of factors we'll never fully understand, and started cutting.
This isn't a reaction to anything any of the individuals who suffered AA did. The day before, FNBO was fine with all those credit profiles. But the day after they weren't, so CLs got cut. This also explains why other people continued to get CLIs, because it's not just about the total credit limits they have outstanding, but about the riskiness of the entire pool.
Also, I wouldn't call FNBO a large regional bank. They're about the 80th largest bank in the U.S., based on assets, and about 20 times smaller than the largest regional banks like PNC or Truist. They're not small -- there are thousands of banks in the U.S., so making the top 100 makes FNBO notable -- but the asset size going down that list falls off fast. I wouldn't say they're anything more than a mid-sized regional bank.
8/22/24
