The market for consumer credit could get tighter as banks find it more difficult to find sources of capital. Credit cards, which are often financed by a bank's borrowing, are one such product that would be most affected. Traditionally, banks have priced credit card rates based on a premium to LIBOR, a rate at which banks lend to other banks.
Recently, ratings agencies downgraded some of the largest banks on fears of an economic slowdown. When a company's rating is cut, the cost it pays to borrow money goes up. These costs are always passed onto consumers.
Credit Card Disconnect
The LIBOR benchmark does not usually make for a volatile benchmark. That is to say that under normal operating conditions, banks can borrow money at the LIBOR price without question. Thus, most credit cards are based on LIBOR interest rates.
Unfortunately for bankers, not all loans are financed with money borrowed from other banks. Individual banks find that they have higher or lower interest rates based on their own financial standing. During the 2009 financial crisis, banks that previously all borrowed money at or near the LIBOR benchmark all found that they would have to pay more to borrow capital. Well financed banks cut their lending to other banks fearing catastrophe.
In the end, most banks made it through the crisis. Some failed. Many banking institutions turned to consumers to pass on their higher costs. In going forward, one would reasonably expect that interest rates on credit card balances may reset higher as banker's sources of capital become more expensive. Bank ratings are very important to the overall cost that borrowers pay to access basic financial services such as a credit card.