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Impact of FAS 166/167 on the Securitization of Credit Card Loans

Over 80 percent of securitized loans consolidated back onto banks’ balance sheets as a result of FAS 166/167 are revolving consumer loans, primarily credit card loans. In this paper, we examine the impact of FAS 166/167 on the credit card loan securitization. First, we document that the affected U.S. banks sponsor significantly less amount of credit card-backed securities after FAS 166/167. In addition, compared with both non-securitized credit card loans from the same securitization banks and credit card loans from non-securitization banks, the balance of securitized credit card loans falls significantly after the adoption of FAS 166/167 for affected banks. We consider two alternative explanations for this reduction: increased financial reporting transparency and reduced regulatory capital arbitrage. Consistent with the latter explanation, we find that banks securitized higher quality credit card loans before the adoption of the new accounting rules and that the differential loan quality between securitized and non-securitized loans from the same securitization banks decreases after FAS 166/167. Overall, our findings suggest that banks reduce credit card securitization due to decreased regulatory capital arbitrage opportunities after the adoption of FAS 166/167.