By: Matthew Heller.
Banks diverted earnings to reserves for “newly risky loans as the coronavirus tanked credit health and plunged the U.S. into a recession.”
U.S. banks’ profits plunged in the first quarter as firms boosted loan-loss reserves to guard against defaults amid the coronavirus pandemic.
In the first government survey of the industry since the pandemic shut down large parts of the economy, the Federal Deposit Insurance Corp. said net income for 5,112 FDIC-insured institutions dropped 69.6% to $18.5 billion.
Just over half of firms reported year-over-year net income declines and the total share of unprofitable institutions jumped to 7.3%.
Banks were “forced to divert much of the earnings to protections for newly risky loans as the coronavirus tanked credit health and plunged the U.S. into a recession,” Business Insider said.
Defensive reserves leaped to $197 billion from $125 billion in the year-ago period, according to the FDIC, and banks set aside $38.8 billion to cover potential loan losses in the future, up nearly 280% from the year prior.
Source: Business Insider and CFO (2020)