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Federal Reserve Bank of San Francisco
FRBSF Economic Letter
Loss provisions and bank charge-offs in the financial crisis: lesson learned
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.


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Frederick T. Furlong & Zena Knight, "Loss provisions and bank charge-offs in the financial crisis: lesson learned" , Federal Reserve Bank of San Francisco, FRBSF Economic Letter, number 16, 2010.
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Keywords: Bank loans ; Bank capital ; Risk management
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