Assessing the riskiness and profitability of credit-card banks

The riskiness and profitability of US financial institutions specializing in credit-card loans and related plans are measured. Focusing on explicit accounting returns on explicit credit-card assets, it is found that credit-card banks, whether subsidiaries of bank holding companies or independent ban...

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Bibliographic Details
Published in:Journal of financial services research 1993-06, Vol.7 (2), p.127-150
Main Authors: Sinkey, Joseph F, Nash, Robert C
Format: Article
Language:English
Subjects:
Bank assets
Bank credit cards
Commercial banks
Comparative studies
Credit control
Federal regulation
Financial institutions
Manycompanies
Profitability
Return on equity
Risk
Risk assessment
Statistical analysis
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Summary:The riskiness and profitability of US financial institutions specializing in credit-card loans and related plans are measured. Focusing on explicit accounting returns on explicit credit-card assets, it is found that credit-card banks, whether subsidiaries of bank holding companies or independent banks, earned extraordinary returns during 1984-1991. On average, credit-card firms had pretax return on assets of 3.36% compared to .95% for non-credit-card banks. The costs of the higher returns are greater variability of return on average assets and higher probabilities of insolvency, indicating that credit-card banks are riskier than other commercial banks.
ISSN:0920-8550
1573-0735
DOI:10.1007/BF01046902