The IRA Bank Book Q2 2021: Lower Earnings Ahead

June 3, 2021 | As the second quarter of 2021 winds to a close, the banking industry saw strong GAAP earnings, buoyed by the reversal of over $14 billion in loan loss reserves back into income in Q1 2021. This money was earned last year, however, and masks the relative weakness of core bank earnings outside of highly variable business lines such as investment banking. After putting aside $60 billion in reserves in Q2 2020, the industry is now releasing these funds back into income, an accounting rather than a cash event, as illustrated in the chart below.

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