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

Valued Member

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

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.

Message 1 of 7
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Community Leader
Senior Contributor

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

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



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TCL $110,900 | Agg. Util under 10%
Message 2 of 7
Moderator

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

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. 

Message 3 of 7
Moderator

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


@ImTheDevil 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%

Message 4 of 7
Community Leader
Senior Contributor

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


@FinStar wrote:

@ImTheDevil 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 Smiley Happy



Platinum NPSL | Rose Gold NPSL | BCP | Delta Gold | Hilton Surpass | Hilton Honors | FNBO Prime Visa | PenFed PCR | Navy Platinum | IT Cash | IT Chrome | GHSFCU Visa Plat | Quicksilver | Target | VS | Home Depot | Lowes | Sams MC | Firestone | Overstock | Kohl’s | Key Bank auto loan (2017 Audi A6 Premium Plus S-Line)





TCL $110,900 | Agg. Util under 10%
Message 5 of 7
Valued Member

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

@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?

Message 6 of 7
Moderator

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


@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

Message 7 of 7
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