Banks wary of rate cap

November 16, 1991|By Newsday

As Congress prepares to consider legislation capping credit card interest rates next week, banks said yesterday that the measure would worsen the "credit crunch" by eliminating a key technique they use to boost their balance sheets.

The lower interest rate, banks said, probably would preclude them from selling credit card-backed securities, a practice that dates only to the mid-1980s.

Banks pool their credit card accounts and sell them as securities to institutional investors such as trust funds, insurance companies and mutual funds.

The reason banks don't want these credit card balances on their books is that regulators require them to have capital, a cushion against losses, to back up all loans.

Banks said that if the cap were imposed, it would not be worth selling the securities.

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