Banks are preparing for recession and stockpiling reserves
The largest banks are preparing for new trials related to the consequences of the coronavirus pandemic. According to the forecast of analysts, default on loans is possible in the near future. This indicates that the economic crisis has not been overcome yet and there is a risk of a new stage.
In this regard, U.S. banks have created a reserve of several tens of billions of dollars. These funds should be used to compensate for losses on unpaid loans. Such actions on the part of financial institutions are connected with corporate reporting, which is currently going on in the country. The largest companies, such as JPMorgan, Wells Fargo and others, reserved more than $28 billion in the second quarter of last year, which significantly reduced the profit figures. Banks have already faced the problem of loan repayment, and assume that this situation will be observed in the future. Purchasing power of the population has fallen as a result of the pandemic, the unemployment rate is still high. Companies have also not fully recovered and have not made profit, which could have paid off their debts to financial institutions.
Experts note that banks have increased the amount of funds that go into the reserve. This is due to growing uncertainty in economic terms, and a new wave of slowdown in development.
JPMorgan is the largest bank in the U.S. by asset volumes. Its experts are also concerned about the current situation with unemployment and slow GDP growth, as well as a number of problems with the economy. Analysts’ forecasts did not prove to be true, the real state of affairs is worse than it was supposed 3 months ago. According to JPMorgan representatives, recessionary processes are only observed, and they may gain momentum.
Although the country’s economy showed signs of recovery last spring, after quarantine measures were lifted, the increased number of cases again limited a number of processes and the positive dynamics slowed down significantly. Therefore, banks, realizing the seriousness of the situation, are trying to take timely measures to minimize losses when there is a prolonged recession.
The pandemic is still affecting not only the U.S. economy, but the world as a whole, and we should not expect to see all the difficulties overcome quickly.
JPMorgan in a regular report said the net profit almost halved, and almost $11 billion was sent to the reserve. Bank Wells Fargo also showed a disappointing result: for the first time in 10 years, it recorded a quarterly loss. The company had to reserve about $10 billion.
Citigroup showed a 73% drop in profits, and here it sent about $8 billion to cover loan expenses.
