Quote of the Month:
"Falling interest rates seem to be offsetting consumers' worry about broader economic trends and the declining value of their stock portfolios."
| Forecasts & Statistics |
| Product Trends |
| Industry Trends |
| Issue Archive |
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| Consumer Confidence: Down but Not Out |
| Nobody was surprised to learn that the leading measures of consumer confidence recorded sharp declines in July. July was a bad month for economic news, dominated by corporate accounting scandals and, through most of the month, steady erosion in stock prices. |
| New Data Show Recession Was Longer but Shallow |
| The U.S. Commerce Department revised its estimates of Gross Domestic Product in 2001, revealing that last year's recession actually began in the first quarter and extended through the third quarter. A strong fourth quarter couldn't offset three consecutive quarters of negative growth, leaving the total growth rate for the U.S. economy for all of 2001 at just 0.3 percent. |
| Trends in Housing Starts |
| Although our economy was in a recession for most of 2001, people keep building houses. Joint research by the U.S. Department of Commerce and the U.S. Department of Housing and Urban Development shows that in the 12 months ending in May 2002, there were 1,733,000 housing starts of new privately owned housing in the U.S., an increase of 8.0 percent from the volume in the year ended May 2001. |
| Trends in Households' Debt Burden |
| For many years, the Federal Reserve Board has been measuring the debt burden of households by taking the sum of the monthly payments on consumer debt and mortgage debt payments as a percentage of their disposable (after-tax) income. Note that the payments include both interest and reduction of debt. The debt burden is assessed by calculating the debt payments for each quarter as percentages of consumers' after-tax income. |
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| Debit Cards: PIN or Sign? |
| A decade ago, banks were desperately promoting debit cards as a payment device because of the lower cost of processing electronic transactions instead of paper checks. The challenge was convincing consumers to use a "plastic check" (e.g., Visa's Check Card debit product). Now, the battle for consumer acceptance of the debit card product has largely been won. |
| Rent to Own |
| Consumers who are renting their homes may now enlist in rent-to-own programs that will assist them in finally becoming homeowners. According to Joy C. Shaw's article in the Wall Street Journal, Equity Residential Properties is a major proponent of the program. |
| OCC Reports Tightening of Retail Loan Underwriting |
| A survey of the 62 largest national banks in the U.S. by the Office of the Comptroller of the Currency (OCC) revealed a tightening of underwriting standards for the second consecutive year. The OCC's 2002 survey revealed that 39 percent of surveyed banks had tightened their retail lending guidelines, up from 32 percent a year earlier. |
| E-Commerce Update |
| High-speed Internet access is still increasing, despite the bust in Telecom company stock values. |
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| Profitability of Credit Card Banks |
| Since 1988 the Federal Reserve Board has been required by Congress to report on the profitability of credit card operations of depository institutions. In late June of this year, the Fed issued its 12th annual report, derived from Call Report data that all commercial banks are required to submit. |
| Average Grade on Students' Financial Knowledge—F |
| An article in the June Collector regarding high school seniors' financial intelligence is rather disheartening. . . . In response to the 2002 survey, the seniors correctly answered only 50.3 percent of the questions. |
| Banking on the Hispanic Market |
| As we have noted in earlier issues of Spotlight, Hispanics, both in the U.S. and South America, offer an under-served and growing market. Citigroup acted on these insights about a year ago by paying $12.5 billion for Banamex, Mexico's second largest bank. |
| Looting Mexican Banks |
| An important reason that U.S. bankers have found profitable markets in Mexico is the plight (self-inflicted) of Mexican banks. The National Bureau of Economic Research has released a research study by three economists titled Related Lending, (NBER Working Paper No. 8848). The crux of the Mexican banking market is the practice of "related lending;" that is, making loans to companies owned by directors. These arrangements "may allow insiders to divert resources from depositors and/or minority shareholders to themselves. |
| Trends in Market Shares |
| At times, it is easy to become engrossed in the day-to-day challenges in the consumer credit industry, and lose sight of broader trends. The accompanying table provides some perspective on trends in the industry over the period from the end of 1997 to the end of April 2002. |
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| Fannie and Freddie Agree to More Disclosure |
| Recently, there has been an intense debate on the appropriate policies to regulate Fannie Mae and Freddie Mac. In their well-written article in the Wall Street Journal, John D. McKinnon and Patrick Barta point out that the two companies were a duopoly "created decades ago as government agencies to increase the efficiency of the U.S. mortgage market." |
| Visa and MasterCard Face $38 Billion Suit |
| In earlier issues of Spotlight we have tracked the suit by the nation's largest retailers, including Wal-Mart Stores, Inc., Sears, Roebuck & Co., and Safeway, Inc. against the major banks that jointly own the two credit card associations. John R. Wilke has recently provided an excellent update on the case in the New York Times. |