Journal Article

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

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.

Keywords: Bank loans; Risk management; Bank capital;

Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: FRBSF Economic Letter

Publication Date: 2010

Order Number: 16