Authors: Itamar Drechsler, Hyeyoon Jung, Weiyu Peng, Dominik Supera, and Guanyu Zhou
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Staff Reports
Credit Card Banking
Number 1143
March 2025 Revised August 2026
March 2025 Revised August 2026
JEL classification: G12, G21, G51
Credit card interest rates currently average 22 percent, an 18 percent spread over the short rate. This spread far exceeds that on any other loan or bond, yet nearly half of households are credit card borrowers. Why are credit card rates so high? To understand this, and the economics of credit card banking, we use regulatory account-level data to analyze the lifetime cash flows of 550 million monthly accounts, representing 90 percent of the U.S. credit card market. While charge-off rates are comparatively high, averaging around 6 percent, they explain only a fraction of cards’ spread. Reward payments and noninterest expenses are more than offset by interchange and non-interest income. Operating expenses, particularly marketing, are very large and are used to generate pricing power. Yet after deducting them, card lending still earns a 6.8 percent return on assets (ROA), more than four times the banking sector’s ROA. Using the cross section of accounts, we estimate that credit card rates price in a 4.3 percent default risk premium, similar to high-yield bonds. Accounting for this, card lending earns an alpha of around 1.5 percent relative to the aggregate bank sector.
Author Disclosure Statement(s)
Itamar Drechsler
Itamar Drechsler declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports.
Hyeyoon Jung
Hyeyoon Jung declares that (s)he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports.
Weiyu Peng
Weiyu Peng declares that (s)he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports.
Dominik Supera
Dominik Supera declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports.
Guanyu Zhou
Guanyu Zhou declares that (s)he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports.
Itamar Drechsler declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports.
Hyeyoon Jung
Hyeyoon Jung declares that (s)he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports.
Weiyu Peng
Weiyu Peng declares that (s)he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports.
Dominik Supera
Dominik Supera declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports.
Guanyu Zhou
Guanyu Zhou declares that (s)he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports.
Suggested Citation:
Drechsler, Itamar, Hyeyoon Jung, Weiyu Peng, Dominik Supera, and Guanyu Zhou. 2025. “Credit Card Banking.” Federal Reserve Bank of New York Staff Reports, no. 1143, revised August 2026. https://doi.org/10.59576/sr.1143
Drechsler, Itamar, Hyeyoon Jung, Weiyu Peng, Dominik Supera, and Guanyu Zhou. 2025. “Credit Card Banking.” Federal Reserve Bank of New York Staff Reports, no. 1143, revised August 2026. https://doi.org/10.59576/sr.1143
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