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Default Risk and Pricing in the US Credit Card Market

Author

Listed:
  • Kyle Dempsey
  • Felicia Ionescu

Abstract

Administrative data reveal substantial spreads in the US unsecured credit market that are large on average and increase with default risk less steeply than predicted by standard models. We develop a framework that replicates this empirical pattern by incorporating long-term debt, multiple default options, and lending costs, using it to decompose the key drivers of the equilibrium relationship between loan prices and default risk. We find that the long-term nature of debt and lenders’ intermediation costs drive the high level of spreads, while variation in recovery across default options drives the flat slope of the price-risk relationship.

Suggested Citation

  • Kyle Dempsey & Felicia Ionescu, 2026. "Default Risk and Pricing in the US Credit Card Market," Journal of Political Economy Macroeconomics, University of Chicago Press, vol. 4(2), pages 297-342.
    • Handle: RePEc:ucp:jpemac:doi:10.1086/740429
    DOI: 10.1086/740429
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