Delay-and-pray. For much of this year that was the strategy for banks when it came to the reserves they set aside to cover souring loans. Now, third-quarter earnings might show whether this gambit is paying off.
Most banks let reserves for loan losses dwindle as a percentage of non-performing assets, mostly past-due loans, on a bet that growth of dud loans would slow. They did this to sidestep the need to rebuild reserves, a move that hits profit.
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