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In response to notehound's post of the proposed FASB rule change (forcing banks to recognize and allocate capital for bad loans and losses from the time of origination and after), I took a look at a favorite (though obscure) metric from the Federal Reserve, Assets at Banks whose ALLL (allowance for loan and lease losses) exceeds their Nonperforming Loans. I have been watching this chart for years.

The data series, which used to cover 1980 and after, has been truncated by the Federal Reserve! It now starts in Q12010!!!


The original series showed how banks always had 90% or above allowance for loan and lease losses until the 2008 financial crisis. It then dropped like a stone to 15%. It has been gradually struggling up since then and is now 35%.

The old data series showed how pathetically inadequate the reserves are and how slow the recovery (actually, non-recovery since about 2/3 of loan and lease losses are not covered!).

The new series makes the "recovery" look significant.

I'm amazed that the Fed did this -- partly because it's so dastardly and partly because nobody ever talks about this series except me.

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