Market conditions and demand, legislative reform, and innovation allowed the securitization industry to evolve from its infancy into a mainstay of the financial markets in less than three decades. As investor acceptance increased, the markets continued to grow and innovate. However, at times innovation came at the cost of decreased transparency, perceived declines in quality, and increased risk. The combined effects of weakening credit assessments and a downturn in the housing market and global economy led to a dramatic decrease in new securitization transactions. Although securitization is expected to maintain its key role in global capital markets, the market continues to face challenges as it recovers.
Restoring confidence in the securitization market requires a focus on several core principles:
The financial crisis of 2007-2009 and the Credit Card Accountability, Responsibility, and Disclosure Act (the CARD Act of 2009) have had a profound impact on the credit card industry. The Act has resulted in tighter credit for many consumers and caused credit card issuers and their technology partners to incur significant expenditures to comply with its mandates.
In the short term, credit card issuers focused their efforts on shedding risky accounts and altering billing practices, which have impacted revenues. Less attention was paid to the drivers of the cost structure supporting their credit card business. In order to sustain and grow profitability over the long term, credit card issuers will need to address their cost structures and make fundamental changes to their operating models.
Leading practices among companies using new costing methods to drive operating and strategic decisions have resulted in benefits such as:
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