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Provision Changes Resulted from Current Crisis

It was reported that big banks like Bank of America, JP Morgan Chase and Wells Fargo all increased their provisions to anticipate the rising waves of credit losses.

Bank of America set aside $4.8 billion in total provision for credit losses. JP Morgan Chase raised its total provision to $8.3 billion from $1.4 billion. Wells Fargo increased its provision by 500% to $3.8 billion. All the increases reflected their concerns of darkening economic futures.

However, compared to the 2008-2009 recession the provision rates are still under the severest level (see chart). Furthermore, both BOA and Wells are at an early point of rising losses while Chase seems started at a higher level.

Depending on different portfolio mix, a bank should have an effective provision strategy. The CECL (Current Expected Credit Loss) would be a good tool to help you forecast future losses.

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1 Comment

Thank you for a very informative analysis!

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