The delinquency rate on loans is key in understanding banking. It answers one question: what percentage of loans is overdue for payment? The delinquency rate is by far the most useful indicator for “credit stress.” It seems, however, as if delinquency no longer counts. Few are paying attention to the quick and sudden rise of the delinquency rate. What does it tell us and is a new banking crisis imminent?

This Is What Happened after Janet Yellen Hiked the Fed Funds Rate in December

More Fragile

This Is Why Nobody Is Paying Attention

The headline number is fooling Fed-officials; delinquency rates are still declining. But the delinquency rate on all bank loans (the headline number) has no predictive power; it just follows a random pattern. Source: St Louis Fed

Which Loans Are Increasingly Overdue?

A clear danger sign: delinquency rates on commercial and industrial loans are creeping up. Source: St Louis Fed

In dollar terms the shift is even more pronounced. This is of course the result of our staggering debt levels, which is not apparent in the relative numbers. Source: St Louis Fed

In line with increasing loan delinquencies, charge-off rates on commercial and industrial loans are picking up as well. Source: St Louis Fed

The delinquency rate in Europe is also on a rise; here too, at least in the periphery countries, it seems as if the credit cycle has turned. Source: European Central Bank (CBD2, ‘gross non-performing debt instruments’)

Keep a Close Eye on Delinquency


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