BANKS HAVE STARTED TO PULL BACK ON CREDIT GROWTH

Banks have started to pull back on credit growth.

 Of course, as we all know well, bad things happen to Ponzi schemes when people are no longer able to refinance their old credit with new credit...

ADDITIONALLY: Banks are  pulling back on subprime card loan growth. 

  • For the past 3 years, bank lending to subprime card posted an 8% CAGR, faster than prime's 5% growth.
  • Banks are now beginning to put on the brakes.  Subprime loan growth has slowed over the past two quarters to 10% y/y in 2Q17, down from 13% y/y peak in 4Q16.
  • Our quant work shows a negative correlation between change in loan growth and change in losses.  Result? Expect declining subprime loan growth to drive up subprime losses over the next 12 months.