Thursday, January 20, 2011

What Another Leg Down in Housing Will Do to Loan Loss Reserves

Banks have been reporting steadily increasing earnings since 2009. However, since 2009 they have also continually dropped their allowance for loan losses as a percent of total loans.

They have done this based on an assumption that the real estate market has bottomed. However, it looks like real estate prices have recently started falling again. (You can see the year-over-year change is now negative.)

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