What were US bankers smoking during the period 1990 and 2006?During that period, bankers cut their loan loss provisioning by about two thirds. Most of the decline occurred during 2002-06.
At the time, bankers must have thought that loan defaults were a thing of the past. No doubt, securitisation played a part, with bankers passing off their dodgy loans to gullible investment banks an institutional investors. With all the crap sitting somewhere else, bankers thought that they could economise on their loan loss provisioning.
Well, defaulting loans are back in fashion. Banks are now desperately trying to rebuild their provisioning in order to absorb the higher default rates.
With the US economy slipping into recession, it is a race against time.
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