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The authors noted that the typical scenario for economic downturns is for the number of problem loans to rise, along with loan-loss provisions. During the financial crisis of 2008 and 2009, commonly known as the Great Recession, net charge-offs totaled more than $50 billion, a historically high level. Meanwhile, the provisions for loan and lease losses more than tripled from 2007 to 2008 at the onset of the recession—from less than $20 billion to more than $70 billion in just a year.
Read More »Do Banks Wait Until Economic Downturns to Build Up Loan-Loss Reserves?
