Last week the “Big 4” banks in the USA announced the results for the December 2022 quarter. Most of the parameters were within the estimates as the revenues saw a fall and intern income also saw a decline. But the most important element to notice was the loan loss provisions. The total of all four banks together was the highest since the beginning of the covid crisis and going back further it was similar to the level before Global Financial Crisis.
This does not indicate that such a crisis is about to unfold but it does indicate that banks are turning very cautious from here on. This data along with $2 trillion in the reverse repo ( an amount kept safely with Federal Reserve) provides a clear indication that banks are not willing to take any kind of risk currently.
Such a cautious approach is a given when the default rates in all categories are highest in three years along with the personal savings close to turning negative by June 2023.
All these elements combined bring a high level of uncertainty to the banking system and if any crisis does take place in a high-interest rate environment then it impacts them much more. This also leads to large-scale job cuts.
Though these are most likely to get worst before they normalise these large banks can anticipate and prepare for it. It is necessary for other companies as well to anticipate and prepare cause if and when a such crisis unfolds the so-called “QE” that most depend on will not be in the way it was last time.
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