American banks’ earnings will gauge customers’ financial health

THE HEALTH of America’s economy and that of its banks are closely intertwined. Sometimes, as in the global financial crisis of 2007-09, hazardous behaviour by the banks leads to the whole economy being laid low.

Strong investment-bank results have, so far, helped offset the damage from the real economy. In the first two quarters of 2020 America’s four biggest lenders wrote down the value of their assets by $50bn, as they made provisions for expected losses on loans. Bank of America, Citigroup and JPMorgan Chase, which have big investment banks as well as giant commercial banks, ended up in profit.

Whether loan defaults will climb more sharply depends on a couple of factors. One is the course of the economy. Most states have begun to reopen, permitting businesses to bring in more revenues than they were during the stricter isolation phase in early 2020. If recovery continues, they are more likely to pay their debts; if it stalls, they are likelier to default.

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