- Lenders, including major banks, are expanding their provisions to guard against loan losses.
- The rapidly growing reserves reflect concerns about the health of commercial-real-estate debt.
- The provisions put a drag on earnings, curtail lending, and could spur a cash crunch for some banks.
This earnings season, some major banks bucked tumult in the sector by raking in record revenues and surpassing Wall Street expectations.
But a blemish is building on the balance sheets of a growing number of financial institutions, in the form of cash reserves that banks and other lenders are required to collect against expected loan losses — including souring debts tied to commercial real estate.
The reserves, stagnant money that doesn’t earn a return, place a drag on earnings, curtail lending, and show how hundreds of billions of dollars of problem real-estate assets, such as office buildings, are beginning to inflict wider financial damage.
The US’s four