Credit Card Charge-offs

Résumé du livre

This paper studies the accuracy of the Roll Rate model--the most commonly used technique in forecasting economic losses due to credit card charge-offs--by taking 1278 banks and credit card issuing institutions in the USA within the period of 4th quarter of 2007 to 2nd quarter of 2008. It also examines the augmentation of the Roll Rate model by incorporating some bank specific variables--bank size, interest fees, the share of credit card loans in total assets, and aggregate amount of credit card loans. A significant association between charge-off rate and severe delinquency is observed in both the methodologies--the standard Roll Rate model and the Augmented Roll Rate model. Results show better performing (measured by profitability) banks are associated with lower charge-off rate and charge-off rate increases with asset size of banks. A positive association between the interest rate and fees charged by the banks and charge-off is found. I also find a positive association between the amount of credit card loan share in its total asset and the charge off rate.