Net charge-offs at U.S. banks and thrifts jumped to $13.19 billion in the fourth quarter of 2017, a 20% increase over the third quarter and an 8.9% increase year over year.
Even so, loan loss provisions remained largely flat quarter over quarter at $13.61 billion, sending the provision-to-net-charge-off ratio down 20.3 percentage points to 103.2% in the fourth quarter.
Loan growth has been steadily outpacing reserve growth for years now. The industry's loan loss reserves were equal to only 1.3% of gross loans as of Dec. 31, 2017, according to regulatory filings, the lowest mark since the third quarter of 2007.
Once the industry adopts the current expected credit loss model in 2020, loan reserves will likely increase considerably as banks will be required to set aside reserves at the time of loan origination based on expected lifetime loan losses.
Fourth-quarter provisions outpaced net charge-offs at Big Four JPMorgan Chase & Co. and Citigroup Inc., while Bank of America Corp. and Wells Fargo & Co. set aside provisions equal to only 79.71% and 86.68% of fourth-quarter net charge-offs, respectively.
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