Banks Stockpile Billions as They Prepare for Things to Get Worse

[Zorro]

JPMorgan Chase, Citigroup and Wells Fargo said that as long as the economy behaved according to their forecasts, they were braced for more pandemic-induced pain.

Three of the nation’s biggest banks revealed Tuesday that they had set aside billions of dollars to cover potential losses on loans, signaling that they don’t expect consumers and corporations to be able to pay their debts in the coming months as the pandemic continues to gut employment and commerce.

Collectively, JPMorgan Chase, Citigroup and Wells Fargo have put aside $25 billion during the second quarter, they said. As a result, their quarterly profits plunged. It was Wells Fargo’s first quarterly loss since 2008.

Bank executives said government aid had so far cushioned the economic fallout from the coronavirus pandemic, which sent millions of workers home beginning in March as cities and states began to shut down. These federal programs, meant to help tide Americans over the worst of the crisis, include a $600 weekly supplement to unemployment benefits. But as the programs begin to expire in the coming months, banks expect their loan losses to mount because defaults will probably rise.

“We’ll expect to gain more visibility on the damage that we’re dealing with over the coming months,” Jennifer Piepszak, JPMorgan’s chief financial officer, said on a conference call with journalists on Tuesday.

https://www.nytimes.com/2020/07/14/business/big-banks-quarterly-results.html

[CrispyQ]

1. It's time for Wall St. to bail out Main St.

If this pandemic has shown us anything, it's that "essential workers" are who keep the economy going, not the fucking "job creators."

[Laelth]

2. +1 n/t

-Laelth

[sarcasmo]

3. Why stockpile cash? Gold would be the smart play.

Four more years of Trump and our cash will be worthless.

[2naSalit]

4. Perhaps sooner than that. ...nt

[SWBTATTReg]

6. They're not really stockpiling cash, it's basically an accounting move to set aside reserves to ...

cover anticipated loan losses, any smart business worth their salt does this (estimate possible losses, set aside reserves to cover anticipated losses (basically they're setting aside some of their existing revenue stream for these possible losses).

[ProfessorGAC]

7. For Banks, Though...

...raising liquidity means tightening lending.
There's a rating system called CAMEL. The L is for liquidity.
Regulators/auditors look for a balance of assets, liquidity, management practices (read as salary structure), expenses (non-salary), etc.
As liquidity is increased to cover potential losses, the cash available for lending has to come down.
I was on the board of a sizeable credit union for many years. I had to read those eye numbing reports every year!
Learned a lot about banking in those 19 years.
So, tightening lending is a recessionary indicator.

[SWBTATTReg]

8. Thanks for the clarification. Mind numbing is right, in reading those reports but they do need...

to be read and interpreted accurately still. I thought already with the increased capital reserves that all were supposed to undergo (after the 2008 collapse) that capital reserves, after being built back up, are significant enough to weather any significant downturns, but I don't know if trump and cronies have decreased these requirements (to build up capital reserves back up), I wouldn't be surprised. Banks were fighting these increased requirements for reserves to be built back up (thus making those increased reserves unavailable for lending, etc.).

[ProfessorGAC]

9. It's A Constant Balance

The expectations of the regulators is not a constant.
Overall economic conditions dictate what they consider prudent.
Another thing the M in CAMEL that's reviewed in board & management responsiveness to changing situations, and systems in place to be agile & nimble.
It's, indeed, a moving target.

[Backseat Driver]

5. Well, that explains the shortage of coins, LOL!