The Market Risk Premium for Unsecured Consumer Credit Risk

We use the prices of credit card asset-backed securities to study the market risk premium associated with unsecured consumer credit risk. The consumer credit risk premium has historically been comparable to high yield corporate bond spreads, but has increased dramatically since the financial crisis. We find evidence that this increase is primarily due to balance-sheet costs imposed by recent changes in regulatory capital requirements which have effectively placed credit card securitizations back onto issuer balance sheets. These changes in capital regulation may have added hundreds of basis points to the cost of unsecured household credit.