Friday, March 29, 2013

Nonperforming Loans and Loan Loss Reserves

Interesting.  Hopefully I read this first chart correct, help me if you know more.
Percent of loan-loss reserve assets that exceed nonperforming loans (blue) and percent of loans that are nonperforming (red). 
Periodically, usually due to rising interest rates or worsening economic conditions, banks call in their loans.  They reduce loan origination and, for the most part, stop rolling-over loans.  The value of their loss reserves then increases relative to their total loans (which is decreasing).  Interesting.

Loans Loss Reserve to Total Loans.

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