Big Banks Dial Back Loan Loss Reserves But Uncertainty Looms

Don’t read too much into the earnings surges at big banks this quarter.

The nation’s largest banks reduced the money they set aside in the first half 2020 to cover losses on bad loans, and thus boosted their earnings, but these accounting moves don’t signal that they think the pandemic’s economic woes are over.

The coronavirus vaccine rollout is bumpy, job losses are growing, and each bank’s view of the future is different, leading to various estimates of losses—and different impacts on bank earnings. In some cases, the biggest drops in loss set-asides were because the banks’ worst-case scenarios didn’t ...