B.B. sent us this gem from Zero Hedge: The Problem Explained In 110 Words [1]
o o o
R.V. spotted this: US Banks Build Defenses Against Downturn [2]. R.V.’s comment: In spite of the title, the article is actually about how banks have taken down loan loss reserves to bolster profit, not about how they have increased the reserves. If I reduce the loan loss reserve, I have to back out the previously recognized expense, which has the effect of increasing profit. So if I increase my loan loss reserve, it is an expense, which would lower profit and reduce assets (loans are assets to banks). They will increase fees or increase loans (recklessly) to offset this hit to earnings, which will keep downward pressure on this reserve rate driving it lower still. This is another graph that has entered the “2007 zone” and we know how that turned out.
Items from The Economics Team:
Central Banks Seen as Risk Factor to Global Economy [3]
U.S. Banks Build Defenses Against Downturn (Financial Times) [4]