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Loss provisions and bank charge-offs in the financial crisis: lesson learned

Author

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  • Frederick T. Furlong
  • Zena Knight

Abstract

The enormity of the recent financial shock was not fully apparent until well into the crisis. One result was that banks did unusually low levels of pre-reserving against eventual loan losses. Much of that underreserving was related to the extraordinary decline in real estate values that led to outsized losses on mortgage loans. This experience highlights the limitations of the bank provisioning process and the need to guard against worse-than-expected economic conditions through higher capital levels.

Suggested Citation

  • Frederick T. Furlong & Zena Knight, 2010. "Loss provisions and bank charge-offs in the financial crisis: lesson learned," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue may24.
    • Handle: RePEc:fip:fedfel:y:2010:i:may24:n:2010-16
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    Cited by:

    1. David Bholat & Rosa M. Lastra & Sheri M. Markose & Andrea Miglionico & Kallol Sen, 2018. "Non-performing loans at the dawn of IFRS 9: regulatory and accounting treatment of asset quality," Journal of Banking Regulation, Palgrave Macmillan, vol. 19(1), pages 33-54, January.
    2. Bholat, David & Lastra, Rosa & Markose, Sheri & Miglionico, Andrea & Sen, Kallol, 2016. "Non-performing loans: regulatory and accounting treatments of assets," Bank of England working papers 594, Bank of England.

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