In this year’s second quarter, U.S. banks booked $18.9 billion in losses, the most in any quarter since the second quarter of 2020 when anti-COVID lockdowns crashed the economy.
The number is up 17 percent from the first three months of this year and 75 percent compared to the same period last year.
About $10.7 billion of the losses were due to individuals failing to keep up credit card payments. Roughly $1.17 billion came from commercial property owners defaulting on their loans.
The debts are considered “unrecoverable,” meaning lenders will make no further attempts to collect.
Consumers have burned through the savings they amassed during the COVID-era lockdown and have piled more than $1 trillion onto credit cards. Commercial landlords are having to slash rents and offer perks to attract and keep tenants, while their operating expenses and interest on their variable-rate loans keep rising.
Expecting the losses to mount, banks collectively sequestered another $21.5 billion during the previous quarter. Lenders now have set aside the largest reserves against loan losses in any quarter since mid-2020 and the third largest since 2013, the Financial Times reported.
Banks are bolstering reserves against the possibility of a recession, which still could occur. Some are allotting enough reserves to protect against the rate of bad loans that would result from a 5-percent unemployment rate.
TREND FORECAST: Banks are being hit with loan defaults at a time when they also are holding $500 billion or more in low-yield bonds that have little market value now that interest rates are high. They also are having to pay more interest to depositors to keep that cash from migrating to money market funds and other high-yield storage.
Because banks are a collecting point for economic bad news among consumers and businesses, their stocks will be an early bellwether to watch for the first signs of not only an economic downturn… but most importantly a market crash, as the banksters did in creating the Panic of ’08.