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00:00 Speaker A
Is this credit card thing going to happen?
00:02 Speaker B
No. Definitely not.
00:04 Speaker A
Why not?
00:05 Speaker B
Uh, because Congress would have to pass legislation and you would see a battle on Capitol Hill, the like of which we haven’t seen in a generation from the banks. Jamie Diamond would lead the charge. So I, I think that, you know, the president is speaking in an aspirational sense.
00:23 Speaker A
But when the banks come and say, well, this would be terrible for US consumers because we would just wouldn’t issue them credit cards anymore. Is that
00:32 Speaker A
I mean, could the banks afford to still be relatively, um, loose with credit? You know, in other words, could they, could they take off 5% of the people they lend to and still cap it at 10%?
00:47 Speaker B
No, the business doesn’t work that way. you would have to have a portfolio that was so pedestrian and with such low loss rates that they wouldn’t do it. You know, let me give you an example. Probably the riskiest credit card issuer in the country is Synchrony.
01:03 Speaker A
Mhm.
01:03 Speaker B
Synchrony wrote off 5% of loans in, you know, total loans last quarter. That’s normal for their business because they have a 20% average spread.
01:10 Speaker A
Right.
01:11 Speaker B
Their highest is probably close to 30. So all of these credit card businesses subsidize the bad loans with the good loans.
01:19 Speaker A
Right.
01:19 Speaker B
It’s just the way it works.
01:20 Speaker A
Yeah.
01:20 Speaker B
We can just say, okay, nobody has credit anymore, or or force people to come in and get unsecured credit lines at individual by individual.
01:32 Speaker A
Right.
01:32 Speaker B
But even then, you know, the banks, let’s put it this way, the banks have been a little piggy when it comes to yields. They have been because the rest of the book doesn’t make a lot of money. This is why they don’t own single family mortgages. The returns on single family mortgages are awful.
01:46 Speaker A
Yeah.
01:46 Speaker B
But on the other hand, credit cards and then loans to non-bank financial institutions, those are the two areas of growth for banks this year.