Bank profits rise

Bank profitability is back up, as it appears that the nation’s biggest banks feel comfortable enough with the amount of money they’ve set aside to cover potentially bad loans caused by the pandemic.

JPMorgan Chase, Wells Fargo, Citigroup and Bank of America all reported big profit jumps from a year earlier this week, largely caused by a dramatic drop in their so-called loan-loss reserves.

Loan-loss reserves are the amount of money banks set aside to cover loans that are falling behind or are uncollectible. The primary reason for adding to reserves this year has been the pandemic. Millions of Americans have lost their jobs and small businesses have closed, so banks had to build their reserves to cover more potentially bad loans.

The big four banks set aside just $5 billion in their loan loss reserves last quarter, a fraction of the $33 billion they set aside in the second quarter, and on top of the billions they set aside in the quarter before that.

Before the pandemic, loan loss reserves were at historic lows, and delinquency rates were roughly 2% across all types of loans and mortgages, according to the American Bankers Association.