Banks face uncertainty on card reserves

June 26, 2009 | By Jim Kim

Moody's reports that the monthly credit card charge-off rate has risen again in May to another record high, for the sixth straight month. Zacks says the charge-off rate rose to 10.6 percent in May from nearly 10 percent in April. The pace of increase may moderate. Moody's expects a peak of around 12 percent in the second quarter of 2010. Delinquencies, however, actually fell to 5.97 percent in May from 6.34 percent in April.

This may have been due "to a seasonal trend, as consumers used tax refunds to pay back their credit card debts." Delinquencies will likely rise, so the point of all this is that banks are in somewhat of a pressure cooker as far as card write-downs go. Many believe that they have not nearly reserved themselves adequately.

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