By the end of last year, U.S. banks’ charge-offs of credit card loans had dropped to the lowest rate since at least the mid-1980s—an annualized rate of 1.57% of balances, according to Federal Reserve data. The WSJ warns that this may not last.
This delinquency rate is still historically quite low at roughly 2.2%, or about a third below the level it was at going into the pandemic, according to Autonomous. That presents little immediate threat to lenders’ earnings, especially as many are still carrying relatively large set-asides for loan losses on their books. But indicators like these have been enough to mark a turning point in some investors’ minds, since they have been accompanied by a rapid rebound of borrowing and spending.