America’s banks missed hundreds of billions of dollars due to the coronavirus pandemic, according to a report from the Federal Reserve Board. The losses – that can be as high as $ 400 billion estimated – are the result of an unprecedented surge in loan defaults that happened during the last years.
Banks have been forced to adjust their business models, streamline operations, and take on new and unfamiliar risks.
Loan defaults were around $ 250 billion in 2021, with an additional $150 billion coming from higher loan losses and other costs, according to Fed, with commercial real estate and small business loans taking the biggest hit.
Small business loan defaults came to $ 100 billion in the same year, and commercial real estate loan defaults got to more than $ 50 billion.
The losses and their ripple effects on the broader economy lead to slower economic growth, and also less access to credit for businesses and households, for example, even with the Fed’s proposals of several measures to help mitigate the losses – including providing capital to banks and expanding liquidity programs.
However, recent reports suggest that the USA is now showing signs of recovery from the pandemic.
How Are Banks Recovering?
Despite the challenges posed by the pandemic, banks have managed to make some progress in their recovery efforts. They have leveraged their resources to create new products and services, such as digital banking platforms, and to better meet customer needs.
They have also implemented cost-saving measures, such as automation and digital transformation initiatives, to reduce operating expenses.
Furthermore, almost every bank in America has taken steps to strengthen capital buffers and liquidity positions to better protect themselves against potential losses.
The banking industry is still in the midst of a long and uncertain recovery as we can see from recent news and events. Some banks are continuing to adjust their operations and risk management strategies, some are investing in new technologies and products to strengthen their competitive position and to remain competitive in the long term.
