Modeled Loss Rates
The loss rates provided in this section are based on portfolio data as of December 31, 2022, and the supervisory severely adverse scenario published in February of 2023. The loss rates provide more information about how the Federal Reserve expects the supervisory models to treat specific assets under stress.
Corporate Loan Model
Modeled Loss Rates on Pools of Corporate Loans
The output of the corporate loan model is the expected loss on each loan. As described above, estimated corporate loan loss rates depend on several variables. This section groups loans according to three of the most important variables in the model: sector (financial and nonfinancial), security status (secured and unsecured), and rating class (investment grade and non-investment grade).102 Categorizing corporate loans reported on schedule H.1 of the FR Y-14Q by sector, security status, and rating class results in eight groups of loans:103
- Financial, secured, investment grade
- Financial, secured, non-investment grade
- Financial, unsecured, investment grade
- Financial, unsecured, non-investment grade
- Nonfinancial, secured, investment grade
- Nonfinancial, secured, non-investment grade
- Nonfinancial, unsecured, investment grade
- Nonfinancial, unsecured, non-investment grade
The remainder of this section reports summary statistics and modeled loss rates for these eight groups of corporate loans.
Table 19 reports summary statistics for the eight groups of loans. The summary statistics cover a wide set of variables that capture important characteristics of the loans and borrowers in the loan groups.
Table 19. Summary statistics of selected variables in the corporate loan data grouped by loan and borrower characteristics
Percent as a share of utilized balance, except as noted
| Variables | Non-investment grade | Investment grade | ||||||
|---|---|---|---|---|---|---|---|---|
| Nonfinancial sector | Financial sector | Nonfinancial sector | Financial sector | |||||
| Unsecured | Secured | Unsecured | Secured | Unsecured | Secured | Unsecured | Secured | |
| Number of loans (thousands) | 13.73 | 91.44 | 2.43 | 11.70 | 23.96 | 59.41 | 3.64 | 17.60 |
| Facility type | ||||||||
| Revolving | 37.37 | 46.53 | 25.03 | 53.85 | 32.62 | 42.24 | 37.16 | 67.67 |
| Term loan | 44.39 | 40.83 | 40.90 | 19.15 | 46.55 | 40.06 | 31.57 | 13.99 |
| Other | 18.24 | 12.64 | 34.07 | 27.00 | 20.84 | 17.71 | 31.27 | 18.34 |
| Credit rating 1 | ||||||||
| AAA | 0.00 | 0.00 | 0.00 | 0.00 | 1.97 | 1.35 | 2.06 | 3.43 |
| AA | 0.00 | 0.00 | 0.00 | 0.00 | 6.91 | 9.03 | 6.58 | 12.96 |
| A | 0.00 | 0.00 | 0.00 | 0.00 | 20.93 | 22.38 | 32.49 | 29.40 |
| BBB | 0.00 | 0.00 | 0.00 | 0.00 | 70.19 | 67.24 | 58.86 | 54.22 |
| BB | 80.51 | 69.09 | 79.77 | 74.27 | 0.00 | 0.00 | 0.00 | 0.00 |
| B | 12.79 | 24.50 | 17.72 | 24.65 | 0.00 | 0.00 | 0.00 | 0.00 |
| CCC or below | 6.70 | 6.41 | 2.51 | 1.08 | 0.00 | 0.00 | 0.00 | 0.00 |
| Lien position | ||||||||
| First-lien senior | 0.00 | 100.00 | 0.00 | 100.00 | 0.00 | 100.00 | 0.00 | 100.00 |
| Senior unsecured | 92.75 | 0.00 | 94.26 | 0.00 | 96.40 | 0.00 | 97.87 | 0.00 |
| Other | 7.25 | 0.00 | 5.74 | 0.00 | 3.60 | 0.00 | 2.13 | 0.00 |
| Interest rate variability | ||||||||
| Fixed | 21.37 | 13.82 | 17.80 | 6.73 | 22.99 | 25.77 | 14.49 | 4.39 |
| Floating | 72.49 | 82.79 | 74.14 | 88.62 | 72.08 | 71.26 | 81.01 | 92.15 |
| Mixed | 3.38 | 3.11 | 6.89 | 4.62 | 2.37 | 2.62 | 3.35 | 3.46 |
| Industry 2 | ||||||||
| Agriculture, fishing, and hunting | 0.61 | 1.05 | 0.00 | 0.00 | 0.18 | 0.57 | 0.00 | 0.00 |
| Natural resources, utilities, and construction | 10.34 | 8.73 | 0.00 | 0.00 | 11.42 | 5.63 | 0.00 | 0.00 |
| Manufacturing | 24.32 | 19.40 | 0.00 | 0.00 | 26.96 | 13.29 | 0.00 | 0.00 |
| Trade and transportation | 20.04 | 26.08 | 0.00 | 0.00 | 15.43 | 26.02 | 0.00 | 0.00 |
| Technological and business services | 34.09 | 28.28 | 0.00 | 0.00 | 30.59 | 24.81 | 0.00 | 0.00 |
| Finance and insurance | 0.00 | 0.00 | 100.00 | 100.00 | 0.00 | 0.00 | 100.00 | 100.00 |
| Education, health care, and social assistance | 4.06 | 6.04 | 0.00 | 0.00 | 7.33 | 10.85 | 0.00 | 0.00 |
| Entertainment and lodging | 2.81 | 6.29 | 0.00 | 0.00 | 1.14 | 4.31 | 0.00 | 0.00 |
| Other services | 3.72 | 4.12 | 0.00 | 0.00 | 6.95 | 14.52 | 0.00 | 0.00 |
| Guarantor flag | ||||||||
| Full guarantee | 44.36 | 44.40 | 36.33 | 37.01 | 29.61 | 32.16 | 27.06 | 14.70 |
| U.S. government guarantee | 0.39 | 0.09 | 1.68 | 0.02 | 1.06 | 0.66 | 1.02 | 0.00 |
| Partial guarantee | 3.77 | 4.50 | 2.55 | 10.71 | 1.82 | 3.42 | 3.23 | 4.15 |
| No guarantee | 51.48 | 51.02 | 59.44 | 52.25 | 67.51 | 63.76 | 68.69 | 81.15 |
| Other loan characteristics | ||||||||
| Domestic obligor, share of utilized balance | 55.22 | 91.92 | 42.05 | 82.91 | 72.57 | 93.09 | 49.58 | 74.87 |
| Remaining maturity, average in months3 , 4 | 35.59 | 48.56 | 26.27 | 29.41 | 36.15 | 56.52 | 31.91 | 39.80 |
| Interest rate, average in percent4 | 5.84 | 6.18 | 5.42 | 5.93 | 4.98 | 4.96 | 5.38 | 5.59 |
| Committed exposure, average in millions of dollars | 15.26 | 11.36 | 23.37 | 24.06 | 29.61 | 14.42 | 50.91 | 49.68 |
| Utilized exposure, average in millions of dollars | 10.90 | 7.90 | 19.10 | 18.82 | 19.76 | 10.00 | 37.46 | 35.21 |
Note: The set of loans presented in this table excludes loans held for sale or accounted for under the fair-value option, loan observations missing data fields used in the model, lines of credit that were undrawn as of 2022:Q4, and other types of loans that are not modeled using the corporate loan model.
1. Credit ratings are derived from firm-reported internal credit ratings for borrowers and a firm-reported table that maps internal ratings to a standardized rating scale. The internal credit ratings of a small percentage of loans map to multiple standardized ratings. In such cases, exposures are divided proportionally and reported in this table as multiple loans. Return to table
2. Industries are collapsed using the first digit of the NAICS 2007 code, except for finance and insurance, which is broken out separately, and public administration, which is collapsed under other services. Return to table
3. Maturity excludes demand loans. Return to table
4. Averages for remaining maturity and interest rate are weighted by utilized exposure. Return to table
Table 20 shows the modeled loss rates for the eight groups of loans. Each entry in the table shows the portfolio-level (average) estimated loss rate for the loans in one of the eight groups, as well as the median and 25th and 75th percentiles of the estimated loan-level loss rates.
Table 20. Projected corporate loan portfolio loss rates and 25th and 75th percentile ranges by loan and borrower characteristics, 2023:Q1–2025:Q1, 2023 Stress Test severely adverse scenario
| Sector | Security status | Rating class | Loan-level loss rates (percent) | Portfolio-level loss rates (percent) | ||
|---|---|---|---|---|---|---|
| 25th | Median | 75th | Average | |||
| Financial | Secured | Investment grade | 1.4 | 4.1 | 5.2 | 3.6 |
| Financial | Secured | Non-investment grade | 6.1 | 6.1 | 15.2 | 8.6 |
| Financial | Unsecured | Investment grade | 0.7 | 2.1 | 7.7 | 3.4 |
| Financial | Unsecured | Non-investment grade | 1.4 | 7.1 | 17.1 | 6.0 |
| Nonfinancial | Secured | Investment grade | 0.5 | 0.6 | 1.5 | 1.2 |
| Nonfinancial | Secured | Non-investment grade | 4.1 | 4.8 | 12.8 | 7.6 |
| Nonfinancial | Unsecured | Investment grade | 0.6 | 1.1 | 2.4 | 1.3 |
| Nonfinancial | Unsecured | Non-investment grade | 3.3 | 6.4 | 18.5 | 6.6 |
Note: Loan-level loss rates are calculated as cumulative nine-quarter losses on a given loan divided by initial utilized balance on that loan. Portfolio-level loss rates are calculated as the sum of the cumulative nine-quarter losses divided by the sum of initial utilized balances. The set of loans on which loss rates are calculated excludes loans held for sale or accounted for under the fair-value option, loan observations missing data fields used in the model, lines of credit that were undrawn as of 2022:Q4, and other types of loans that are not modeled using the corporate loan model.
Certain groups of loans generally have wider ranges of losses than other groups. Although the loans are grouped according to the most important characteristics in the model, other loan characteristics in the model also affect loss rates, albeit in a more limited manner. Differences in these other characteristics within each loan group and how they interact with the starting economic conditions and the scenario are responsible for the range of loss rates shown in the tables. Greater variation in these other characteristics within a group will generally lead to larger ranges of loss rates. Groups that include a wider range of industries, as shown in table 19, typically have a greater dispersion of loan-level loss rates (table 20).
Portfolios of Hypothetical Corporate Loans and Associated Loss Rates
The effect of loan and borrower characteristics on the losses estimated by the corporate loan model can also be illustrated by the differences in the estimated loss rates on specific sets of hypothetical loans. This section contains descriptive statistics from three portfolios of hypothetical corporate loans (table 22) and the modeled loss rates for the three portfolios (table 23).
The Federal Reserve has designed the portfolios of hypothetical loans to have characteristics similar to the actual loans reported in schedule H.1 of the FR Y-14Q. The Federal Reserve provides three portfolios containing 200 loans each, designed to capture characteristics associated with
- a typical set of loans reported in the FR Y-14Q,
- higher-than-average-risk loans (in this case, non-investment grade loans), and
- lower-than-average-risk loans (in this case, investment grade loans).
The portfolios of hypothetical loans include 12 variables that describe characteristics of corporate loans that are generally used to estimate corporate loan losses (table 21).104
Table 21. List of variables included in portfolios of hypothetical corporate loans
| Variable | Mnemonic | Description |
|---|---|---|
| Facility type | facility_type_cat | The type of credit facility: 1 is revolving 7 is term loan 0 is other |
| Credit rating | rating | Credit rating of obligor. Categories include AAA, AA, A, BBB, BB, B, CCC, CC, C, and D |
| Lien position | lien_position_cat | The type of lien: 1 is first-lien senior 2 is second-lien 3 is senior unsecured 4 is contractually subordinated |
| Interest rate variability | interest_rate_variability | Interest rate type: 0 is fully undrawn (interest rate not provided) 1 is fixed 2 is floating 3 is mixed |
| Industry | naics_two_digit_cat | Two-digit industry code based on 2007 NAICS definitions |
| Guarantor flag | guarantor_flag | Indicates the type of guarantee of the guarantor: 1 is full guarantee 2 is partial guarantee 3 is U.S. government agency guarantee 4 is no guarantee |
| Domestic obligor | domestic_flag | Equal to 1 if obligor is domiciled in the U.S. |
| Remaining maturity | term | Remaining term of the loan in months |
| Interest rate | interest_rate | Interest rate on credit facility |
| Committed exposure | committed_exposure_amt | Committed exposure in dollars |
| Utilized exposure | utilized_exposure_amt | Utilized exposure in dollars |
| Origination year | orig_year | Year loan was originated |
Note: Some of the variables included in the portfolios of hypothetical loans are presented in a more aggregated form than they are reported in the FR Y-14.
Table 22 contains summary statistics for the portfolios of hypothetical corporate loans in the same format as table 19. The portfolios of hypothetical loans are constructed to capture characteristics of certain sets of loans but are not fully representative of the population of loans reported in table 19. Table 23 contains the loss rates for the portfolios of hypothetical corporate loans calculated under the supervisory severely adverse scenario. The portfolio of higher-risk loans has higher loss rates under the severely adverse scenario than the portfolio of typical loans and the portfolio of lower-risk loans.
Table 22. Summary statistics of selected variables in the portfolios of hypothetical corporate loans
Percent as a share of utilized balance, except as noted
| Variables | Lower-risk | Typical | Higher-risk |
|---|---|---|---|
| Facility type | |||
| Revolving | 55.56 | 45.19 | 30.80 |
| Term loan | 25.72 | 41.52 | 57.53 |
| Other | 18.71 | 13.29 | 11.67 |
| Credit rating | |||
| AAA | 0.00 | 0.01 | 0.00 |
| AA | 1.47 | 1.87 | 0.00 |
| A | 32.97 | 2.65 | 0.00 |
| BBB | 65.56 | 28.22 | 0.00 |
| BB | 0.00 | 58.86 | 84.04 |
| B | 0.00 | 7.28 | 15.69 |
| CCC or below | 0.00 | 1.10 | 0.27 |
| Lien position | |||
| First-lien senior | 59.35 | 70.19 | 90.05 |
| Senior unsecured | 40.65 | 29.81 | 9.63 |
| Other | 0.00 | 0.00 | 0.32 |
| Interest rate variability | |||
| Fixed | 17.49 | 9.07 | 15.41 |
| Floating | 82.51 | 90.93 | 84.59 |
| Mixed | 0.00 | 0.00 | 0.00 |
| Industry1 | |||
| Agriculture, fishing, and hunting | 0.00 | 0.47 | 0.63 |
| Natural resources, utilities, and construction | 4.26 | 12.57 | 1.84 |
| Manufacturing | 9.98 | 18.56 | 21.48 |
| Trade and transportation | 27.68 | 11.97 | 22.30 |
| Technological and business services | 5.11 | 24.28 | 14.54 |
| Finance and insurance | 21.32 | 20.41 | 23.01 |
| Education, health care, and social assistance | 14.55 | 5.93 | 4.93 |
| Entertainment and lodging | 6.00 | 3.01 | 8.52 |
| Other services | 11.09 | 2.80 | 2.75 |
| Guarantor flag | |||
| Full guarantee | 31.36 | 43.91 | 52.85 |
| U.S. government guarantee | 0.00 | 0.15 | 0.31 |
| Partial guarantee | 0.00 | 0.56 | 0.40 |
| No guarantee | 68.64 | 55.38 | 46.44 |
| Other loan characteristics | |||
| Domestic obligor, share of utilized balance | 91.18 | 79.95 | 75.42 |
| Remaining maturity, average in months2 , 3 | 36.83 | 28.40 | 45.14 |
| Interest rate, average in percent 3 | 2.92 | 3.28 | 4.30 |
| Committed exposure, average in millions of dollars | 23.36 | 14.71 | 12.98 |
| Utilized exposure, average in millions of dollars | 10.39 | 8.43 | 6.66 |
1. Industries are collapsed using the first digit of the NAICS 2007 code, except for finance and insurance, which is broken out separately, and public administration, which is collapsed under other services. Return to table
2. Maturity excludes demand loans. Return to table
3. Averages for remaining maturity and interest rate are weighted by utilized exposure. Return to table
Table 23. Projected corporate loan portfolio loss rates, 2023:Q1–2025:Q1, 2023 Stress Test severely adverse scenario
Percent
| Hypothetical portfolio | Loss rate |
|---|---|
| Lower-risk | 2.0 |
| Typical | 5.4 |
| Higher-risk | 7.8 |
Note: Portfolio-level loss rates are calculated as the sum of the cumulative nine-quarter losses divided by the sum of initial utilized balances.
Commercial Real Estate Loan Model
Modeled Loss Rates on Pools of Commercial Real Estate Loans
The output of the CRE loan model is the expected loss on each loan. As described above, estimated CRE loan loss rates depend on several variables. This section groups loans according to four of the most important variables in the model: the broad loan category (construction and income-producing loans), time to maturity, property type, and LTV ratio at origination. CRE loans reported on schedule H.2 of the FR Y-14Q are segmented into nine groups:105
- Construction loans
- Time to maturity of three years or less; income-producing loans backed by hotel, retail, or office properties; LTV ratio at origination of 70 percent or below
- Time to maturity of three years or less; income-producing loans backed by hotel, retail, or office properties; LTV ratio at origination of more than 70 percent
- Time to maturity of three years or less; income-producing loans backed by other property types; LTV ratio at origination of 70 percent or below
- Time to maturity of three years or less; income-producing loans backed by other property types; LTV ratio at origination of more than 70 percent
- Time to maturity of more than three years; income-producing loans backed by hotel, retail, or office properties; LTV ratio at origination of 70 percent or below
- Time to maturity of more than three years; income-producing loans backed by hotel, retail, or office properties; LTV ratio at origination of more than 70 percent
- Time to maturity of more than three years; income-producing loans backed by other property types; LTV ratio at origination of 70 percent or below
- Time to maturity of more than three years; income-producing loans backed by other property types; LTV ratio at origination of more than 70 percent
The remainder of this section reports summary statistics and modeled loss rates for these nine groups of CRE loans.
Table 24 reports summary statistics for the nine groups of loans. The summary statistics cover a wide set of variables that capture important characteristics of the loans and borrowers in the loan groups.
Table 24. Summary statistics of selected variables in the CRE loan data grouped by loan and borrower characteristics
Percent as a share of utilized balance, except as noted
| Variables | Construction | Time to maturity of 3 years or less | Time to maturity of greater than 3 years | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Hotel, retail, and office | Other property types | Hotel, retail, and office | Other property types | ||||||
| Loan-to-value at origination | Loan-to-value at origination | Loan-to-value at origination | Loan-to-value at origination | ||||||
| 70% or less | Above 70% | 70% or less | Above 70% | 70% or less | Above 70% | 70% or less | Above 70% | ||
| Number of loans (thousands) | 11.71 | 4.68 | 1.05 | 3.90 | 0.93 | 9.91 | 1.87 | 31.80 | 2.84 |
| Origination balance | |||||||||
| Less than $2 million | 3.13 | 1.59 | 1.68 | 1.75 | 1.57 | 3.89 | 2.87 | 8.45 | 3.53 |
| $2 million–$4.999 million | 4.52 | 4.98 | 5.22 | 5.20 | 4.51 | 10.90 | 8.65 | 17.25 | 9.03 |
| $5 million–$9.999 million | 5.25 | 5.65 | 7.07 | 7.45 | 6.64 | 11.52 | 9.32 | 13.48 | 10.18 |
| $10 million or greater | 87.11 | 87.78 | 86.04 | 85.60 | 87.29 | 73.69 | 79.15 | 60.82 | 77.26 |
| Current collateral value | |||||||||
| Less than $4 million | 4.30 | 1.47 | 3.30 | 1.41 | 3.75 | 3.57 | 5.96 | 7.15 | 7.18 |
| $4 million–$9.999 million | 3.81 | 4.44 | 7.28 | 4.87 | 6.20 | 10.47 | 10.62 | 16.74 | 10.95 |
| $10 million–$19.999 million | 5.56 | 6.43 | 10.26 | 7.63 | 9.68 | 11.84 | 10.77 | 13.79 | 12.56 |
| $20 million or greater | 86.33 | 87.66 | 79.16 | 86.10 | 80.36 | 74.12 | 72.65 | 62.32 | 69.30 |
| Property type | |||||||||
| Hotel | 4.16 | 20.01 | 14.85 | 0.00 | 0.00 | 13.69 | 12.22 | 0.00 | 0.00 |
| Office | 10.81 | 55.27 | 57.86 | 0.00 | 0.00 | 54.14 | 58.78 | 0.00 | 0.00 |
| Retail | 3.45 | 24.73 | 27.30 | 0.00 | 0.00 | 32.17 | 29.00 | 0.00 | 0.00 |
| Industrial | 12.66 | 0.00 | 0.00 | 21.38 | 29.73 | 0.00 | 0.00 | 18.04 | 25.39 |
| Multi-family | 45.20 | 0.00 | 0.00 | 55.96 | 44.83 | 0.00 | 0.00 | 69.99 | 59.61 |
| Other | 23.72 | 0.00 | 0.00 | 22.67 | 25.44 | 0.00 | 0.00 | 11.96 | 14.99 |
| Census region | |||||||||
| Midwest | 7.76 | 9.06 | 15.83 | 12.49 | 19.91 | 7.65 | 11.90 | 7.76 | 16.88 |
| Northeast | 23.76 | 24.30 | 20.16 | 21.62 | 17.60 | 27.68 | 24.32 | 26.70 | 24.25 |
| South | 34.50 | 32.64 | 36.75 | 34.67 | 47.29 | 28.97 | 37.75 | 20.94 | 25.67 |
| West | 33.98 | 34.00 | 27.26 | 31.23 | 15.20 | 35.69 | 26.03 | 44.60 | 33.20 |
| Origination year | |||||||||
| 2019 and prior | 26.97 | 70.02 | 63.32 | 47.08 | 34.85 | 45.66 | 34.19 | 32.85 | 34.45 |
| 2020 | 19.89 | 11.58 | 13.65 | 9.53 | 15.25 | 10.81 | 10.86 | 10.86 | 9.58 |
| 2021 | 30.46 | 9.50 | 10.84 | 15.23 | 21.34 | 20.36 | 27.60 | 24.18 | 30.23 |
| 2022 | 22.68 | 8.91 | 12.20 | 28.16 | 28.56 | 23.18 | 27.35 | 32.11 | 25.75 |
Note: The set of loans presented in this table excludes loans held for sale or accounted for under the fair-value option, loan observations missing data fields used in the model, loans that were in default or had no outstanding or committed balance remaining as of 2022:Q4, and other types of loans that are not modeled using the CRE loan model.
Table 25 shows the modeled loss rates for the nine groups of CRE loans for the supervisory severely adverse scenario. Each entry in the table shows the portfolio-level (average) estimated loss rate for the loans in one of the nine groups, as well as the median and 25th and 75th percentiles of the estimated loan-level loss rates.
Table 25. Projected CRE portfolio loss rates and 25th and 75th percentile ranges by loan and borrower characteristics, 2023:Q1–2025:Q1, 2023 Stress Test severely adverse scenario
| Time to maturity | Property type | Loan-to-value at origination | Loan-level loss rates (percent) | Portfolio-level loss rates (percent) | ||
|---|---|---|---|---|---|---|
| 25th | Median | 75th | Average | |||
| Three years or less | Hotel, retail, and office | 70% or below | 2.0 | 3.4 | 7.1 | 7.5 |
| Three years or less | Hotel, retail, and office | Above 70% | 3.1 | 7.0 | 16.1 | 13.3 |
| Three years or less | Other property types | 70% or below | 0.8 | 1.6 | 3.4 | 4.3 |
| Three years or less | Other property types | Above 70% | 1.7 | 5.8 | 13.2 | 13.2 |
| Greater than three years | Hotel, retail, and office | 70% or below | 0.7 | 1.5 | 2.9 | 3.7 |
| Greater than three years | Hotel, retail, and office | Above 70% | 2.4 | 4.1 | 6.9 | 8.2 |
| Greater than three years | Other property types | 70% or below | 0.2 | 0.4 | 0.8 | 0.9 |
| Greater than three years | Other property types | Above 70% | 0.8 | 1.7 | 2.8 | 4.1 |
| Construction loans | 2.2 | 5.9 | 18.1 | 9.8 | ||
Note: Loss rate distributions differ from previous years due to the phasing-in of updates to the commercial real estate loss given default model. See the "Wholesale Loans: Commercial Real Estate Loans" subsection or appendix A for more details. Loan-level loss rates are calculated as cumulative nine-quarter losses on a given loan divided by initial utilized balance on that loan. Portfolio-level loss rates are calculated as the sum of the cumulative nine-quarter losses divided by the sum of initial utilized balances. The set of loans presented in this table excludes loans held for sale or accounted for under the fair-value option, loan observations missing data fields used in the model, loans that were in default or had no outstanding or committed balance remaining as of 2022:Q4, and other types of loans that are not modeled using the CRE loan model.
Portfolios of Hypothetical Commercial Real Estate Loans and Associated Loss Rates
The effect of loan and borrower characteristics on the losses estimated by the CRE model can also be illustrated by the differences in the estimated loss rates on specific sets of hypothetical loans. This section contains descriptive statistics from three portfolios of hypothetical CRE loans (table 27) and the modeled loss rates for the three portfolios under the supervisory severely adverse scenario (table 28).
The Federal Reserve has designed the portfolios of hypothetical loans to have characteristics similar to the actual loans reported in schedule H.2 of the FR Y-14Q. The Federal Reserve provides three portfolios containing 200 loans each, designed to capture characteristics associated with
- a typical set of loans reported in the FR Y-14Q,
- higher-than-average-risk loans (in this case, loans with time to maturity of three years or less), and
- lower-than-average-risk loans (in this case, loans with time to maturity of more than three years).
The portfolios of hypothetical loans include 10 variables that describe characteristics of CRE loans that are generally used to estimate CRE losses (table 26).106
Table 26. List of variables included in portfolios of hypothetical CRE loans
| Variable | Mnemonic | Description |
|---|---|---|
| Current committed balance | committed_balance_amt | Current committed balance in dollars |
| Current outstanding balance | outstanding_balance_amt | Current outstanding balance in dollars |
| Origination balance | model_origination_balance_amt | Origination balance in dollars |
| Current collateral value | value_current_amt | Collateral value as of the start of the projection period in dollars |
| LTV at origination | ltv_at_origination | Loan-to-value ratio at the origination of loan |
| Broad loan-type category | broad_loan_type_cat | Loan type categorization: categories are "construction" and "income-producing" |
| Property type category | prop_type_cat | Property types: 1 is retail 2 is industrial 3 is hotel 4 is multi-family 5 is office 6 is other |
| State code | state_cd | Two digit integer code for state that the property is located in |
| Year of origination | orig_year | Year that the loan was originated |
| Maturity date | dt_maturity | Maturity date of loan |
Note: Some of the variables included in the portfolios of hypothetical loans are presented in a more aggregated form than they are reported in the FR Y-14.
Table 27 contains summary statistics for the portfolios of hypothetical CRE loans in the same format as table 24. The portfolios of hypothetical loans are constructed to capture characteristics of certain sets of loans but are not fully representative of the population of loans reported in table 24. Table 28 contains the loss rates for the portfolios of hypothetical CRE loans calculated under the supervisory severely adverse scenario. The portfolio of higher-risk loans has higher loss rates under the severely adverse scenario than the portfolio of typical loans and the portfolio of lower-risk loans.
Table 27. Summary statistics of selected variables in the portfolios of hypothetical CRE loans
Percent as a share of utilized balance, except as noted
| Variables | Lower-risk | Typical | Higher-risk |
|---|---|---|---|
| Origination balance | |||
| Less than $2 million | 9.89 | 6.07 | 1.96 |
| $2 million–$4.999 million | 17.78 | 15.63 | 4.75 |
| $5 million–$9.999 million | 15.03 | 16.13 | 8.54 |
| $10 million or greater | 57.30 | 62.16 | 84.75 |
| Current collateral value | |||
| Less than $4 million | 8.05 | 6.09 | 1.63 |
| $4 million–$9.999 million | 18.92 | 20.40 | 5.19 |
| $10 million–$19.999 million | 19.03 | 15.39 | 11.59 |
| $20 million or greater | 54.00 | 58.12 | 81.60 |
| Property type | |||
| Hotel | 8.02 | 7.29 | 18.00 |
| Office | 29.01 | 13.75 | 23.43 |
| Retail | 11.41 | 8.83 | 12.20 |
| Industrial | 7.32 | 2.78 | 2.28 |
| Multi-family | 37.46 | 47.81 | 36.30 |
| Other | 6.79 | 19.55 | 7.80 |
| Census region | |||
| Midwest | 11.83 | 5.58 | 10.20 |
| Northeast | 32.02 | 20.20 | 24.05 |
| South | 20.03 | 38.38 | 31.75 |
| West | 36.12 | 35.84 | 34.01 |
| Origination year | |||
| 2018 and prior | 36.18 | 28.68 | 36.72 |
| 2019 | 23.29 | 18.35 | 29.09 |
| 2020 | 20.31 | 20.87 | 9.18 |
| 2021 | 20.23 | 32.11 | 25.01 |
Table 28. Projected CRE portfolio loss rates, 2023:Q1–2025:Q1, 2023 Stress Test severely adverse scenario
Percent
| Hypothetical portfolio | Loss rate |
|---|---|
| Lower-risk | 3.5 |
| Typical | 4.1 |
| Higher-risk | 14.0 |
Note: Portfolio-level loss rates are calculated as the sum of the cumulative nine-quarter losses divided by the sum of initial utilized balances.
Domestic First-Lien Residential Mortgage Model
Modeled Loss Rates on Pools of First-Lien Mortgages
The output of the first-lien mortgage model is the expected loss on each loan. As described above, estimated first-lien mortgage loss rates depend on a number of variables. In this section, loans are segmented according to two of the most important variables in the model: the LTV ratio at origination and the borrower's commercially available credit score. FICO® Scores are the most widely used commercially available credit scores in the historical data used to estimate the model.107 First-lien mortgages reported on schedule A.1 of the FR Y-14M are segmented by LTV ratio and FICO® Score into six groups of loans:108
- Loans with LTV ratio of 80 percent or less and borrower FICO® Score under 680
- Loans with LTV ratio of 80 percent or less and borrower FICO® Score between 680 and 739
- Loans with LTV ratio of 80 percent or less and borrower FICO® Score of 740 or greater
- Loans with LTV ratio of more than 80 percent and borrower FICO® Score under 680
- Loans with LTV ratio of more than 80 percent and borrower FICO® Score between 680 and 739
- Loans with LTV ratio of more than 80 percent and borrower FICO® Score of 740 or greater
The remainder of this section reports summary statistics and modeled loss rates for these six groups of first-lien mortgages.
Table 29 reports summary statistics for the six groups of loans. The summary statistics cover a wide set of variables that capture important characteristics of the loans and borrowers in the loan groups.
Table 29. Summary statistics of selected variables in the first-lien mortgage data grouped by loan and borrower characteristics
Percent as a share of unpaid principal balance, except as noted
| Variables | Loan-to-value at origination | |||||
|---|---|---|---|---|---|---|
| 80% or less | Greater than 80% | |||||
| Credit score (FICO® score) 1 | Credit score (FICO® score) 1 | |||||
| Under 680 | 680 to 739 | 740 and over | Under 680 | 680 to 739 | 740 and over | |
| Number of loans (thousands) | 120.39 | 428.81 | 1655.55 | 84.02 | 122.73 | 198.88 |
| Current unpaid balance | ||||||
| $200,000 and Less | 25.69 | 8.19 | 4.92 | 57.00 | 23.16 | 6.63 |
| $200,001–$400,000 | 15.53 | 9.37 | 7.01 | 24.55 | 19.35 | 11.28 |
| Over $400,000 | 58.78 | 82.44 | 88.07 | 18.45 | 57.49 | 82.09 |
| Payment status | ||||||
| Current (0–89 days past due) | 99.00 | 99.75 | 99.95 | 97.46 | 99.42 | 99.92 |
| Late (90–180 days past due) | 1.00 | 0.25 | 0.05 | 2.54 | 0.58 | 0.08 |
| Occupancy type | ||||||
| Primary | 81.38 | 78.30 | 83.79 | 95.21 | 91.68 | 90.78 |
| Second home | 14.13 | 17.66 | 12.72 | 3.90 | 7.30 | 8.34 |
| Investment | 4.37 | 3.99 | 3.48 | 0.74 | 0.82 | 0.86 |
| Unknown | 0.11 | 0.05 | 0.01 | 0.14 | 0.21 | 0.02 |
| Product | ||||||
| Fixed rate mortgage | 47.80 | 55.89 | 62.62 | 77.99 | 71.27 | 69.94 |
| Adjustable rate mortgage | 52.20 | 44.11 | 37.38 | 22.01 | 28.73 | 30.06 |
| Property type | ||||||
| Single | 84.10 | 83.18 | 84.45 | 88.59 | 85.18 | 86.15 |
| Condo/Co-op | 11.75 | 14.41 | 13.37 | 5.42 | 10.72 | 12.07 |
| 2–4 units | 3.11 | 2.06 | 1.93 | 4.20 | 2.81 | 1.40 |
| Other | 1.04 | 0.36 | 0.25 | 1.79 | 1.29 | 0.38 |
| Loan purpose | ||||||
| Purchase | 30.31 | 40.64 | 47.24 | 65.12 | 72.95 | 78.30 |
| Refinance | 29.86 | 30.68 | 34.09 | 13.94 | 13.40 | 12.43 |
| Cashout | 37.33 | 26.80 | 17.33 | 19.04 | 11.22 | 8.28 |
| Other | 2.51 | 1.87 | 1.33 | 1.90 | 2.42 | 0.99 |
| Census region | ||||||
| Midwest | 9.43 | 6.71 | 6.64 | 20.64 | 17.54 | 13.58 |
| Northeast | 29.28 | 27.41 | 23.45 | 21.43 | 23.87 | 22.55 |
| South | 26.80 | 23.24 | 21.32 | 45.08 | 36.43 | 32.86 |
| West | 34.48 | 42.64 | 48.60 | 12.85 | 22.16 | 31.01 |
| Loan term | ||||||
| 30 years or greater | 85.61 | 88.33 | 89.14 | 92.75 | 91.77 | 93.15 |
| Less than 30 years | 14.39 | 11.67 | 10.86 | 7.25 | 8.23 | 6.85 |
| Loan vintage | ||||||
| Before 2018 | 52.88 | 29.50 | 17.32 | 62.97 | 31.78 | 15.32 |
| 2018–2020 | 18.98 | 26.18 | 28.49 | 20.37 | 27.39 | 29.60 |
| After 2020 | 28.14 | 44.33 | 54.20 | 16.66 | 40.83 | 55.07 |
Note: The set of loans presented in this table excludes loans held for sale or accounted for under the fair-value option, loan observations missing data fields used in the model, loans that were in default or had no unpaid balance remaining as of 2022:Q4, loans that were purchased credit-impaired, and other types of loans that are not modeled using the domestic first-lien mortgage model (e.g., commercial loans).
1. The Federal Reserve maps to FICO® Scores as an input to its domestic first-lien mortgage loss model, because these scores are the most widely used commercially available credit scores in the historical data used for estimation. Return to table
Table 30 shows the modeled loss rates for the six groups of loans for the supervisory severely adverse scenario. Each entry in the table shows the portfolio-level (average) estimated loss rate for the loans in one of the six groups, as well as the median and 25th and 75th percentiles of the estimated loan-level loss rates.
Table 30. Projected first-lien mortgage portfolio loss rates and 25th and 75th percentile ranges by loan and borrower characteristics, 2023:Q1–2025:Q1, 2023 Stress Test severely adverse scenario
| Loan-to-value at origination | Credit score (FICO® score)1 | Loan-level loss rates (percent) | Portfolio-level loss rates (percent) | ||
|---|---|---|---|---|---|
| 25th | Median | 75th | Average | ||
| 80% or less | Under 680 | 2.4 | 4.5 | 8.4 | 6.6 |
| 80% or less | 680–739 | 1.1 | 2.2 | 4.2 | 4.3 |
| 80% or less | 740 and over | 0.3 | 0.8 | 1.7 | 1.9 |
| Greater than 80% | Under 680 | 4.3 | 8.0 | 14.3 | 12.4 |
| Greater than 80% | 680–739 | 2.5 | 4.8 | 8.8 | 8.6 |
| Greater than 80% | 740 and over | 1.0 | 2.2 | 4.1 | 3.9 |
Note: Loan-level loss rates are calculated as cumulative nine-quarter losses on a given loan divided by the principal balance amount as of 2022:Q4. Portfolio-level loss rates are calculated as the sum of the cumulative nine-quarter losses divided by the sum of principal balances as of 2022:Q4. The set of loans presented in this table excludes loans held for sale or accounted for under the fair-value option, loan observations missing data fields used in the model, loans that were in default or had no unpaid balance remaining as of 2022:Q4, loans that were purchased credit-impaired, and other types of loans that are not modeled using the domestic first-lien mortgage model (e.g. commercial loans).
1. The Federal Reserve maps to FICO® Scores as an input to its domestic first-lien mortgage loss model, because these scores are the most widely used commercially available credit scores in the historical data used for estimation. Return to table
Certain groups of loans generally have wider ranges of losses than other groups. Although the loans are grouped according to the most important characteristics in the model, other loan characteristics in the model also affect loss rates, albeit in a more limited manner. Differences in these other characteristics within each loan group are responsible for the range of loss rates shown in the tables. Greater variation in these other characteristics within a group will generally lead to larger ranges of loss rates. Borrowers with lower credit scores typically have a wider range of projected loss rates than borrowers with higher credit scores because of greater variation in other loan characteristics.
Portfolios of Hypothetical First-Lien Mortgages and Associated Loss Rates
The effect of loan and borrower characteristics on the losses estimated by the first-lien model can also be illustrated by the differences in the estimated loss rates on specific sets of hypothetical loans. This section contains descriptive statistics from three portfolios of hypothetical loans (table 32) and the modeled loss rates for the three portfolios under the supervisory severely adverse scenario (table 33).
The Federal Reserve has designed the portfolios of hypothetical first-lien mortgages to have characteristics similar to the actual loans reported in schedule A.1 of the FR Y-14M. The Federal Reserve provides three portfolios containing 200 loans each, designed to capture characteristics associated with
- a typical set of loans reported in the FR Y-14Q,
- higher-than-average-risk loans (in this case, loans with LTV at origination of more than 80 percent), and
- lower-than-average-risk loans (in this case, loans with LTV at origination of 80 percent or lower).
The portfolios of hypothetical loans include 13 variables that describe characteristics of first-lien mortgages that are generally used to estimate first-lien mortgage losses (table 31).109
Table 31. List of variables included in portfolios of hypothetical first-lien mortgages
| Variable | Mnemonic | Description |
|---|---|---|
| Principal balance amount | prin_bal_amt | The principal balance as of the start of the projection period in dollars |
| Loan amount at origination | loan_amt_orig | The loan amount at origination in dollars |
| Loan-to-value ratio at origination | ltv_ratio_orig | The ratio of loan amount at origination to the property value at origination |
| Credit score at origination (FICO® Scores) | creditbureau_score_orig | The credit score of the borrower at origination using a commercially available credit score |
| Property state | prop_state | The state in which the property is located. This includes the 50 U.S. states and the District of Columbia |
| Occupancy status of property | occupancy_type | The occupancy status of property: 1 is primary 2 is second home 3 is non-owner/investment U is unknown |
| Mortgage product | product | Mortgage products: "frm" is fixed-rate mortgage "arm" is adjustable-rate mortgage |
| Property type | prop_type | Property types: 1 is single 2 is condo/co-op 3 is 2–4 units 4 is other |
| Mortgage purpose | purpose_type | Mortgage purpose: 1 is purchase 2 is rate/term refinance 3 is cash-out refinance 4 is other refinance |
| Loan term at origination | loan_term_orig | Loan term at origination in months |
| Year of loan origination | year | Year of loan origination |
| Loan age | loan_age | Loan age in months |
| Payment status | status | Payment status: 1 is current (0–89 days past due) 2 is late (90–179 days past due) |
Some of the variables included in the portfolios of hypothetical loans are presented in a more aggregated form than they are reported in the FR Y-14.
Note: The Federal Reserve maps to FICO® Scores as an input to its domestic first-lien mortgage loss model, because these scores are the most widely used commercially available credit scores in the historical data used for estimation.
Table 32 contains summary statistics for the portfolios of hypothetical loans in the same format as table 29. The portfolios of hypothetical loans are constructed to capture characteristics of certain sets of loans but are not fully representative of the population of loans reported in table 29. Table 33 contains the loss rates for the portfolios of hypothetical loans calculated under the supervisory severely adverse scenario. The portfolio of higher-risk loans has higher loss rates under the severely adverse scenario than the portfolio of typical loans and the portfolio of lower-risk loans.
Table 32. Summary statistics of selected variables in the portfolios of hypothetical first-lien mortgages
Percent as a share of unpaid principal balance, except as noted
| Variables | Lower-risk | Typical | Higher-risk |
|---|---|---|---|
| Current unpaid balance | |||
| $200,000 and Less | 9.29 | 10.73 | 34.26 |
| $200,001–$400,000 | 16.80 | 16.52 | 29.69 |
| Over $400,000 | 73.92 | 72.75 | 36.05 |
| Payment status | |||
| Current (0–89 days past due) | 100.00 | 99.56 | 100.00 |
| Late (90–180 days past due) | 0.00 | 0.44 | 0.00 |
| Occupancy type | |||
| Primary | 90.96 | 88.19 | 95.42 |
| Second home | 7.03 | 6.05 | 3.24 |
| Investment | 2.01 | 5.76 | 1.11 |
| Unknown | 0.00 | 0.00 | 0.22 |
| Product | |||
| Fixed rate mortgage | 63.87 | 57.69 | 79.60 |
| Adjustable rate mortgage | 36.13 | 42.31 | 20.40 |
| Property type | |||
| Single | 82.30 | 77.84 | 89.19 |
| Condo/Co-op | 14.60 | 20.61 | 9.19 |
| 2–4 units | 2.40 | 1.33 | 0.00 |
| Other | 0.70 | 0.23 | 1.62 |
| Loan purpose | |||
| Purchase | 45.37 | 52.13 | 71.70 |
| Refinance | 34.95 | 34.03 | 19.15 |
| Cashout | 18.84 | 12.17 | 7.46 |
| Other | 0.84 | 1.66 | 1.69 |
| Census region | |||
| Midwest | 11.48 | 10.51 | 21.57 |
| Northeast | 24.72 | 26.22 | 12.28 |
| South | 21.43 | 21.94 | 44.96 |
| West | 42.37 | 41.32 | 21.20 |
| Loan term | |||
| 30 years or greater | 85.71 | 89.47 | 82.94 |
| Less than 30 years | 14.29 | 10.53 | 17.06 |
| Loan vintage | |||
| Before 2018 | 30.84 | 34.51 | 51.50 |
| 2018–2020 | 40.37 | 39.32 | 30.86 |
| After 2020 | 28.79 | 26.17 | 17.64 |
Table 33. Projected first-lien mortgage portfolio loss rates, 2023:Q1–2025:Q1, 2023 Stress Test severely adverse scenario
Percent
| Hypothetical portfolio | Loss rate |
|---|---|
| Lower-risk | 2.7 |
| Typical | 2.8 |
| Higher-risk | 6.4 |
Domestic Credit Card Model
Modeled Loss Rates on Pools of Credit Card Accounts
The output of the domestic credit card model is the expected loss on each account. As described above, the Federal Reserve uses the credit card model to project losses on domestic bank cards and domestic charge cards, and estimated credit card loss rates depend on a number of variables. This section groups domestic bank card accounts (credit card accounts) according to their commercially available credit score, which is one of the most important variables in the model. FICO® Scores are the most widely used commercially available credit scores in the historical data used to estimate the model.110 Credit card accounts reported on schedule D.1 of the FR Y-14M are segmented by FICO® Score into four groups of accounts:111
- Accounts with FICO® Score under 650
- Accounts with FICO® Score from 650 to 699
- Accounts with FICO® Score from 700 to 749
- Accounts with FICO® Score above 750
The remainder of this section reports summary statistics and modeled loss rates for these four groups of credit card accounts.
Table 34 reports summary statistics for the four groups of credit card accounts. The summary statistics cover a wide set of variables that capture important account characteristics.
Table 34. Summary statistics of selected variables in the credit card data by credit score
Percent as a share of cycle ending balance, except as noted
| Variables | Credit score (FICO® Score)1 | |||
|---|---|---|---|---|
| Under 650 | 650 to 699 | 700 to 749 | 750 and over | |
| Number of accounts (millions) | 46.82 | 40.05 | 41.80 | 93.93 |
| Credit card type | ||||
| General purpose | 89.06 | 92.06 | 93.25 | 94.25 |
| Private label | 10.94 | 7.94 | 6.75 | 5.75 |
| Current credit limit | ||||
| $1,500 and less | 15.28 | 3.88 | 1.31 | 0.50 |
| $1,501–$7,500 | 55.01 | 42.35 | 24.72 | 12.21 |
| Over $7,500 | 29.71 | 53.77 | 73.97 | 87.29 |
| Days past due | ||||
| Current | 83.44 | 98.27 | 99.24 | 99.70 |
| 30+ Days past due | 16.56 | 1.73 | 0.76 | 0.30 |
| Product type | ||||
| Co-brand | 25.41 | 26.15 | 26.59 | 34.48 |
| Other | 74.59 | 73.85 | 73.41 | 65.52 |
| Month-end account status | ||||
| Open and active | 93.41 | 99.62 | 99.86 | 99.94 |
| Other | 6.59 | 0.38 | 0.14 | 0.06 |
| Account origination year | ||||
| 2018 and prior | 51.13 | 57.49 | 63.50 | 66.21 |
| 2019 | 11.47 | 10.18 | 8.95 | 8.60 |
| 2020 | 8.22 | 6.98 | 6.00 | 5.56 |
| 2021 | 15.75 | 12.06 | 9.46 | 8.27 |
| 2022 | 13.44 | 13.29 | 12.08 | 11.37 |
| Month-end close status | ||||
| Not closed | 93.44 | 99.64 | 99.87 | 99.95 |
| Closed | 6.56 | 0.36 | 0.13 | 0.05 |
| Cycle ending balance | ||||
| Under $1,000 | 10.94 | 4.61 | 3.93 | 8.50 |
| $1,000–$1,999 | 13.34 | 8.09 | 6.26 | 10.80 |
| $2,000–$2,999 | 13.24 | 9.30 | 7.08 | 10.16 |
| $3,000–$4,999 | 19.97 | 18.05 | 14.58 | 17.15 |
| $5,000–$9,999 | 24.86 | 30.44 | 29.11 | 26.76 |
| $10,000 and over | 17.64 | 29.50 | 39.05 | 26.63 |
| Income at origination | ||||
| $50,000 and less | 42.28 | 36.87 | 33.29 | 23.93 |
| $50,001–$100,000 | 38.51 | 38.36 | 37.63 | 36.39 |
| Over $100,000 | 19.22 | 24.78 | 29.08 | 39.68 |
| Original credit limit | ||||
| $1,500 and less | 36.26 | 22.86 | 15.13 | 6.47 |
| $1,501–$7,500 | 46.29 | 49.05 | 44.76 | 31.90 |
| Over $7,500 | 17.45 | 28.09 | 40.12 | 61.62 |
| Interest rate at cycle end | ||||
| Under 12% | 7.06 | 7.78 | 7.99 | 7.09 |
| 12%–14.99% | 1.14 | 1.90 | 3.37 | 4.83 |
| 15%–19.99% | 9.43 | 15.56 | 23.59 | 39.38 |
| 20%–23.99% | 13.33 | 18.54 | 23.08 | 27.35 |
| 24% and over | 69.04 | 56.22 | 41.97 | 21.36 |
Note: The set of consumer bank card accounts presented in this table excludes accounts held for sale or accounted for under the fair-value option, observations missing data fields used in the model, accounts with 0–1 percent utilization rate as of 2022:Q4, and other types of loans that are not modeled using the domestic credit card model.
1. The Federal Reserve maps to FICO® Scores as an input to its credit card loss model, because these scores are the most widely used commercially available credit scores in the historical data used for estimation. Return to table
Table 35 shows the modeled loss rates for the four groups of accounts under the supervisory severely adverse scenario. Each entry in the table shows the portfolio-level (average) estimated loss rate for the accounts in one of the four groups, as well as the median and 25th and 75th percentiles of the estimated account-level loss rates.
Table 35. Projected credit card portfolio loss rates and 25th and 75th percentile ranges by credit score, 2023:Q1–2025:Q1, 2023 Stress Test severely adverse scenario
| Credit score (FICO® Score) 1 | Account-level loss rates (percent) | Portfolio-level loss rates (percent) | ||
|---|---|---|---|---|
| 25th | Median | 75th | Average | |
| Under 650 | 30.5 | 42.1 | 65.2 | 41.8 |
| 650–699 | 16.1 | 21.5 | 31.6 | 21.1 |
| 700–749 | 4.8 | 11.5 | 20.0 | 10.9 |
| 750 and over | 4.3 | 6.9 | 14.7 | 5.7 |
Note: Account-level loss rates are calculated as cumulative nine-quarter losses on a given account divided by initial utilized balance. Portfolio-level loss rates are calculated as the sum of the cumulative nine-quarter losses divided by the sum of initial utilized balances. The set of consumer bank card accounts on which loss rates are calculated excludes accounts held for sale or accounted for under the fair-value option, observations missing data fields used in the model, accounts with 0–1 percent utilization rates as of 2022:Q4, and other types of loans that are not modeled using the domestic credit card model.
1. The Federal Reserve maps to FICO® Scores as an input to its credit card loss model, because these scores are the most widely used commercially available credit scores in the historical data used for estimation. Return to table
Certain groups of accounts generally have wider ranges of losses than other groups. Although accounts are grouped according to one of the most important characteristics in the model, other account characteristics in the model also affect loss rates, albeit in a more limited manner. Differences in these other characteristics within each account group are responsible for the range of loss rates shown in the tables. Greater variation in these other characteristics within a group will generally lead to larger ranges of loss rates. Borrowers with lower credit scores typically have a wider range of projected loss rates than borrowers with higher credit scores because of greater variation in other loan characteristics.
Portfolios of Hypothetical Credit Card Accounts and Associated Loss Rates
The effect of account characteristics on the losses estimated by the credit card loss model can also be illustrated by the differences in the estimated loss rates on specific sets of hypothetical accounts. This section contains descriptive statistics for three portfolios of hypothetical accounts (table 37) and the modeled loss rates for the three portfolios under the supervisory severely adverse scenario (table 38).
Table 36. List of variables included in portfolios of hypothetical credit card accounts
| Variable | Mnemonic | Description |
|---|---|---|
| Credit card type | creditcardtype | Credit card type: 1 is general purpose 2 is private label |
| Current credit limit | currentcreditlimit | Maximum dollar amount that may be borrowed on the account during the reporting month, as of month's end |
| Days past due | dayspastdue | Actual number of days the account is past due as of the current reporting month's cycle date |
| Product type | producttype | Product type: 1 is co-brand 2 is other |
| Month-end account status | activeflag | Whether the account has had any debit, credit, or balance activity in the last 12 months at month end: 0 is open and active 1 is other |
| Account origination year | accountoriginationyear | Year in which the original credit card was issued |
| Month-end close status | monthendclosedrevokedflag | Whether, in the current reporting month, the account is closed or revoked and has no further charging privileges: 0 is not closed 1 is closed |
| Refreshed credit score (FICO® Scores) 1 | refreshedcreditscoreprimaryborrower | The most recently updated credit score available for the primary account holder at origination using a commercially available credit bureau score |
| Cycle ending balance | cycleendingbalance | Total outstanding balance for the account at the end of the current month's cycle |
| Income at origination | borrowerincome | Borrower's income |
| Original credit limit | originalcreditlimit | Original credit limit |
| Interest rate at cycle end | cycleendingretailapr | Purchase APR |
1. The Federal Reserve maps to FICO® Scores as an input to its credit card loss model because these scores are the most widely used commercially available credit scores in the historical data used for estimation. Return to table
Table 37. Summary statistics of selected variables in the portfolios of hypothetical credit card accounts
Percent as a share of cycle ending balance, except as noted
| Variables | Lower-risk | Typical | Higher-risk |
|---|---|---|---|
| Credit card type | |||
| General purpose | 97.68 | 93.74 | 86.55 |
| Private label | 2.32 | 6.26 | 13.45 |
| Current credit limit | |||
| $1,500 and less | 1.98 | 4.08 | 15.66 |
| $1,501–$7,500 | 23.49 | 53.53 | 65.40 |
| Over $7,500 | 74.53 | 42.39 | 18.94 |
| Days past due | |||
| Current | 100.00 | 96.21 | 94.98 |
| 30+ Days past due | 0.00 | 3.79 | 5.02 |
| Product type | |||
| Co-brand | 23.18 | 8.87 | 16.74 |
| Other | 76.82 | 91.13 | 83.26 |
| Month-end account status | |||
| Open and active | 100.00 | 100.00 | 98.60 |
| Other | 0.00 | 0.00 | 1.40 |
| Account origination year | |||
| 2018 and prior | 58.42 | 59.06 | 43.89 |
| 2019 | 6.33 | 7.18 | 19.03 |
| 2020 | 11.80 | 12.08 | 9.42 |
| 2021 | 15.57 | 8.18 | 16.49 |
| 2022 | 7.88 | 13.50 | 11.17 |
| Month-end close status | |||
| Not closed | 100.00 | 100.00 | 98.60 |
| Closed | 0.00 | 0.00 | 1.40 |
| Cycle ending balance | |||
| Under $1,000 | 5.53 | 7.82 | 7.46 |
| $1,000–$1,999 | 9.52 | 8.83 | 14.91 |
| $2,000–$2,999 | 9.24 | 13.86 | 20.76 |
| $3,000–$4,999 | 15.89 | 16.82 | 22.74 |
| $5,000–$9,999 | 30.21 | 21.37 | 24.91 |
| $10,000 and over | 29.61 | 31.30 | 9.23 |
| Income at origination | |||
| $50,000 and less | 47.58 | 50.26 | 46.83 |
| $50,001–$100,000 | 16.65 | 18.93 | 24.25 |
| Over $100,000 | 35.77 | 30.81 | 28.92 |
| Original credit limit | |||
| $1,500 and less | 7.94 | 26.52 | 47.74 |
| $1,501–$7,500 | 55.82 | 39.89 | 47.67 |
| Over $7,500 | 36.24 | 33.60 | 4.59 |
| Interest rate at cycle end | |||
| Under 12% | 26.05 | 41.36 | 17.06 |
| 12%–14.99% | 15.31 | 26.44 | 13.70 |
| 15%–19.99% | 25.52 | 17.12 | 23.79 |
| 20%–23.99% | 20.47 | 6.58 | 20.52 |
| 24% and over | 12.65 | 8.49 | 24.94 |
Table 38. Projected credit card portfolio loss rates, 2023:Q1–2025:Q1, 2023 Stress Test severely adverse scenario
Percent
| Hypothetical portfolio | Loss rate |
|---|---|
| Lower-risk | 8.4 |
| Typical | 19.6 |
| Higher-risk | 30.3 |
Note: Portfolio-level loss rates are calculated as the sum of the cumulative nine-quarter losses divided by the sum of initial utilized balances.
The Federal Reserve has designed the portfolios of hypothetical accounts to have characteristics similar to the actual accounts reported in schedule D.1 of the FR Y-14M. The Federal Reserve provides three portfolios containing 200 accounts each, designed to capture characteristics associated with
- a typical set of accounts reported in the FR Y-14M,
- higher-than-average-risk accounts (in this case, accounts with FICO® Scores under 700), and
- lower-than-average-risk accounts (in this case, accounts with FICO® Scores 700 and greater).
The portfolios of hypothetical accounts include 12 variables that describe characteristics of credit card accounts that are generally used to estimate credit card losses (table 36).112
Table 37 contains summary statistics for the portfolios of hypothetical credit card accounts in the same format as table 34. The portfolios of hypothetical accounts are constructed to capture characteristics of certain sets of accounts but are not fully representative of the population of accounts reported in table 34. Table 38 contains the loss rates for the portfolios of hypothetical credit card accounts calculated under the supervisory severely adverse scenario. The portfolio of higher-risk accounts has higher loss rates under the severely adverse scenario than the portfolio of typical accounts and the portfolio of lower-risk accounts.
Explanatory Notes on Model Disclosures
The model disclosures in this document focus on the design of and projections from specific models, whereas the disclosures of supervisory stress test results include projections aggregated to the portfolio level. In most cases, those portfolio-level aggregates contain outputs from multiple supervisory models. Therefore, the results shown in the two different disclosures will be different. This document includes disclosures of loss rates on loan and account segments and on hypothetical portfolios of loans and accounts. These loss rates differ from those included in the stress test results disclosures in that they do not include accounting and other adjustments used to translate projected credit losses into net income. In the supervisory stress test results disclosure, the Federal Reserve makes certain accounting adjustments to translate supervisory model estimates into provisions and other income or expense items needed to calculate stressed pre-tax net income. These adjustments often depend on factors that vary across participating firms, such as write-down amounts on accounts purchased with credit impairments.
References
102. Financial loans have a NAICS category ("naics_two_digit_cat") of 52; all other loans are marked nonfinancial. Secured loans are defined as loans with lien positions ("lien_position_cat") marked as "first-lien senior"; all other loans are marked as unsecured. Investment grade loans are defined as loans with a credit rating ("rating") higher than and including BBB; all other loans are marked as non-investment grade. Return to text
103. The set of loans on which loss rates are calculated excludes loans held for sale or accounted for under the fair-value option, loan observations missing data fields used in the model, lines of credit that were undrawn as of 2022:Q4, and other types of loans that are not modeled using the corporate loan model. Return to text
104. The sets of accounts are available for download on the Federal Reserve's website: higher-than-average-risk accounts, https://www.federalreserve.gov/supervisionreg/files/corporate-high-risk-2024.csv; typical-risk accounts, https://www.federalreserve.gov/supervisionreg/files/corporate-typical-risk-2024.csv; lower-than-average-risk accounts, https://www.federalreserve.gov/supervisionreg/files/corporate-low-risk-2024.csv. Return to text
105. The set of loans presented in this table excludes loans held for sale or accounted for under the fair-value option, loan observations lacking enough reported information to be assigned a modeled loss rate, loans that were in default or had no outstanding or committed balance remaining as of 2022:Q4, and other types of loans that are not modeled using the CRE loan model. Return to text
106. The sets of accounts are available for download on the Federal Reserve's website: higher-than-average-risk accounts, https://www.federalreserve.gov/supervisionreg/files/cre-high-risk-2024.csv; typical-risk accounts, https://www.federalreserve.gov/supervisionreg/files/cre-typical-risk-2024.csv; lower-than-average-risk accounts, https://www.federalreserve.gov/supervisionreg/files/cre-low-risk-2024.csv. Return to text
107. FR Y-14 reporters are not required to report a particular credit score. For the purposes of making projections using a model estimated with FICO® Scores, the Federal Reserve maps scores reported on the FR Y-14 to FICO® Scores. Return to text
108. The set of loans presented in this table excludes loans held for sale or accounted for under the fair-value option, loan observations missing data fields used in the model, loans that were in default or had no unpaid balance remaining as of 2022:Q4, loans that were purchased credit-impaired, and other types of loans that are not modeled using the domestic first-lien mortgage model (e.g., commercial loans). Return to text
109. The sets of accounts are available for download on the Federal Reserve's website: higher-than-average-risk accounts, https://www.federalreserve.gov/supervisionreg/files/usfirstlien-high-risk-2024.csv; typical-risk accounts, https://www.federalreserve.gov/supervisionreg/files/usfirstlien-typical-risk-2024.csv; lower-than-average-risk accounts, https://www.federalreserve.gov/supervisionreg/files/usfirstlien-low-risk-2024.csv. Return to text
110. FR Y-14 reporters are not required to report a particular credit score. For the purposes of making projections using a model estimated with FICO® Scores, the Federal Reserve maps scores reported on the FR Y-14 to FICO® Scores. Return to text
111. The set of accounts presented in this table excludes accounts held for sale or accounted for under the fair-value option, observations missing data fields used in the model, accounts with 0–1 percent utilization rate as of 2022:Q4, and other types of accounts that are not modeled using the credit card model. Return to text
112. The sets of accounts are available for download on the Federal Reserve's website: higher-than-average-risk accounts, https://www.federalreserve.gov/supervisionreg/files/cards-high-risk-2024.csv; typical-risk accounts, https://www.federalreserve.gov/supervisionreg/files/cards-typical-risk-2024.csv; lower-than-average-risk accounts, https://www.federalreserve.gov/supervisionreg/files/cards-low-risk-2024.csv. Return to text