Default Risk and Pricing in the US Credit Card Market

Kyle Dempsey and Felicia Ionescu

Journal of Political Economy Macroeconomics, 2026, vol. 4, issue 2, 297 - 342

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.

Date: 2026
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