The Financial Crisis at the Kitchen Table: Trends in Household Debt and Credit

The Financial Crisis at the Kitchen Table- Trends in Household Debt and CreditThe Financial Crisis at the Kitchen Table: Trends in Household Debt and Credit

Meta Brown, Andrew Haughwout, Donghoon Lee, and Wilbert van der Klaauw

Since the onset of the financial crisis, households have reduced their outstanding debt by about $1.3 trillion. While part of
this reduction stemmed from a historic increase in consumer defaults and lender charge-offs, particularly on mortgage debt, other factors were also at play. An analysis of the New York Fed’s Consumer Credit Panel—a rich new data set on individual credit accounts—reveals that households actively reduced their obligations during this period by paying down their current debts and reducing new borrowing. These household choices, along with banks’ stricter lending standards, helped drive this deleveraging process.

Since the start of the financial crisis, the liabilities side of household balance sheets has been the subject of urgent interest among policymakers and the media. Aggregate trends documented in the Federal Reserve System’s Flow of

Funds Accounts demonstrate a steep run-up in consumer debt from 1999 to 2008, followed by a pronounced decline through at least third-quarter 2012. According to most views, the crisis began in the residential mortgage market, as an increasingly large number of borrowers, especially in the nonprime segment, became delinquent on their mortgage payments. The increase in delinquencies and the enormous rise in residential mortgage foreclosures soon developed into a full-blown financial crisis and led to one of the sharpest market contractions in U.S. history. While many trends in the financial system played a role in these developments, household behavior was clearly a fundamental contributor.

Be the first to comment

Leave a Reply

Tu dirección de correo no será publicada.


*


Google Analytics