Loan loss reserves: The pandemic in five charts
The big six US banks are releasing the loan loss reserves they built up in the pandemic. Where might this end? The answer could be surprising.
One of the more notable stories of the big US bank quarterly earnings seasons this year has been loan loss allowances. The reserves that the banks had ramped up in the early days of the pandemic are starting to be released.
Taken in aggregate, loan loss allowances at Bank of America, Citigroup, Goldman Sachs, JPMorgan, Morgan Stanley and Wells Fargo soared from $57.5 billion on January 1, 2020, to about $101 billion six months later, a rise of 75%.
And there they peaked, sitting at the same level through the third quarter of the year.
The numbers were dominated by the money centre banks, and JPMorgan more than most. Fully one-third of the increase – some $14 billion – was built at JPMorgan alone. The next biggest contributors were Wells Fargo, at 24%, and Citi, at 21%.
Since then, starting in the fourth quarter of 2020 but gathering pace in the first half of 2021, much has been made of the fact that banks are releasing those reserves, something undoubtedly made more possible by continued central bank stimulus and government support schemes that are staving off the worst of the pandemic-related pain to businesses and households.