Banks never really die. Fail, yes. But not die. How nice it would be if borrowers' loans disappeared when their bank went under. Everyone with loans at the 103 banks that have failed this year would be set free. No more mortgage. No more car loan. No more credit card bill.
Sadly, it doesn't work that way. Thanks mostly to the FDIC, assets of failed banks seamlessly shift to the hands of stronger ones.
Never was this more apparent than when Washington Mutual failed last fall -- the largest bank failure in history. Almost instantly, WaMu's assets were sold to JPMorgan Chase
Thankfully for us, JPMorgan still reports some of WaMu's results separately from its own. And guess what? They're absolutely, horrifically, disturbingly terrible. If you've ever wondered what a positively wrecked bank looks like, check out WaMu's credit card default rate in comparison to peers:
|
Bank |
Credit Card Default Rate |
|---|---|
|
Discover Financial |
8.39% |
|
American Express |
8.60% |
|
JPMorgan Chase |
9.41% |
|
Capital One |
9.59% |
|
Citigroup |
9.71% |
|
Bank of America |
12.90% |
|
Washington Mutual |
21.90% |
It's hard to downplay how pathetic this is. Defaults at a rate well over double major competitors' isn't the result of a recession. It isn't the result of unemployment. It isn't the result of soured equity markets. It's the result of atrocious lending standards, and a culture that promoted lending money to anyone who asked for it.
This brings up another point. If you're wondering why credit card interest rates keep surging higher and higher, even as broad interest rates sit close to zero, the table above holds your answer. When WaMu's credit card portfolio defaults at 22%, charging exisiting customers even 30% -- the rate that seems to flare tempers -- likely still leads to losses. The argument that higher interest rates are padding bank profits misses a key point: Much of the time, there are no profits.
