Magazine article Economic Trends

Banks Planning for a Stronger Economy

Magazine article Economic Trends

Banks Planning for a Stronger Economy

Article excerpt


A number of indicators suggest that the banking industry continues to see improvement in overall economic stability. Two of the more significant indicators are loan-loss provisions and net charge-ofFs. Loan-loss provisions arc funds set aside to cover potential loan defaults. Net charge-offs are loans that arc deemed to be unrecoverable after being written off. Banks have recently been decreasing their loan-loss provisions, while net-charge offs have steadily declined since the crisis.

Provisions for loan and lease losses at Federal Deposit Insurance Corporation (FDIC) institutions reached a record low in the first quarter of 2013, falling 23 percent to 11 billion from the first quarter of 2012. Provisions for loan and lease losses have now returned to pre-crisis levels.

The decline in provisions matches the steady decline of net-charge offs (NCOs) experienced at FDIC institutions. Year-over-year changes in NCOs have moved closely with year-over-year changes in loss provisions since the fourth quarter of 2011. Net charge-offs have decreased 27 percent since the first quarter of 2012 although they are not yet at pre-crisis levels.

Net charge-offs for FDIC institutions in the first quarter of 2013 are at 16 billion, falling from 18.5 billion in the previous quarter. This decrease maintains the declining year--over-year trend in net charge-offs that began in the first quarter of 2010.

Of all the types of securitized loans and leases that are recovered, credit card charges form the greatest portion, followed by home equity loans. …

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