Justin Sullivan/GETTY IMAGES – Cutting reserves is not nefarious, bankers say. If a bank has fewer bad loans, it makes sense to have less money set aside to cover them.
By Danielle Douglas
Published: April 26, 2013
Megabanks made a bundle this earnings season, with the top five firms alone pulling in $19.5 billion in profits. But a closer look at the books shows they have been moving money out of rainy-day funds to boost earnings.
Many on Wall Street consider it standard practice. With interest rates low, banks have struggled to grow revenue and have tapped their reserves to pad earnings. But the pace in which they are cutting back on reserves has regulators concerned.
The top five banks released $5 billion from reserves in the first quarter, which comprised roughly a quarter of their total profits, according to an analysis by SNL Financial. By comparison, JPMorgan Chase, Bank of America, Citigroup, Wells Fargo and U.S. Bancorp moved $3.7 billion in the fourth quarter.
Comptroller of the Currency Thomas Curry spent much of last year cautioning banks against draining their reserves amid a fragile economic recovery. He worried that lenders would not be prepared to incur more losses from home-equity loans and commercial loans taken out in 2004 to 2008.
Still, the big five released a total of $22.5 billion last year, down from $27.5 billion in 2011. But the year before, those banks had added about $8.7 billion to their reserves.
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