Unemployment pushes credit card defaults

WASHINGTON, May 11 (UPI) -- The U.S. Treasury Department's stress tests may have underestimated what banks will lose in upcoming credit card defaults, consulting firm Oliver Wyman said.

A hypothetical Treasury "worst case" scenarios developed by the department to test the nation's 19 largest banks projected a loss of $82.4 billion among the banks through 2010, The New York Times reported Monday.

Oliver Wyman projects credit card losses for the 19 banks could reach $141.5 billion by then. For the credit card industry on the whole, losses could reach $186 billion, the firm said.

Traditionally, credit card defaults can be tracked by looking at the unemployment rate, which rose to 8.9 percent in April on the loss of 539,000 jobs. The Department of Labor said 5.7 million jobs have been lost since the recession began in December 2007.

At the end of 2008, banks were writing off 6.3 percent of their credit card accounts. In 2001, when the booming technology sector turned sour, credit card write-offs reached 7.9 percent, the Times said.

Referring to 2001 figures, "we will blow right through it," predicted Inderpreet Batra, an Oliver Wyman consultant.