{{item.videoDuration}}
{{item.title}}
{{item.text}}
{{item.videoDuration}}
{{item.title}}
{{item.text}}
Since the end of July 2023, when the Fed, FDIC, and OCC released their long-awaited proposal to implement the final components of the Basel III agreement, also known as Basel III endgame, banks and other interested parties have been actively assessing its impact.
While the proposed changes will have consequences across many financial products, there are several changes in particular that will impact the profitability and economics of credit and charge card business segments. Some key takeaways include:
- New categories for retail exposures would result in greater improvement to return on capital on higher credit quality customers relative to lower credit quality customers.
- The proposed charge on unused lines of credit could incentivize banks to reduce card credit lines and thereby decrease credit availability for customers.
- Capital requirements for charge cards would be materially higher than for credit cards due to a requirement to compute a large implied credit limit with associated capital charge.
- Banks will need to evaluate and consider treatment of customers affiliates when implementing changes, potentially requiring investments to assess aggregate exposures.
These changes would have a significant impact on banks and would require them to revisit their current strategies for both capital cost optimization and revenue growth based on their customers’ purchase and payment patterns. In the near-term, banks will need to consider how to address the operational challenges of sourcing and aggregating the data required for assessing existing card exposures. Longer term, banks may consider various strategic changes to lower their capital costs, including by reducing the lines of credit that they offer to certain types of customers.
With the end of the Basel III endgame comment period rapidly approaching, banks should identify and demonstrate the impact of the proposal on their products and customers.
This Our Take Special Edition will provide an overview of the Basel III endgame capital impact on credit and charge card issuers as well as considerations for business growth and optimization.
{{filterContent.facetedTitle}}
{{contentList.loadingText}}
{{contentList.loadingText}}
Follow us
