Fed: Loan losses and write downs to increase

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Federal Reserve Vice Chairman Kohn said he expects to see weaker bank earnings and continued write downs from both banks and home builders in the coming months as the credit and housing bust continues. He was urging banks and home builders to build capital as they can in order to protect themselves from insolvency related to write downs and losses. He was disappointed that banks weren’t increasing reserves faster in the face of challenging conditions.

One has to wonder though – are they not raising reserves because they know the Fed is right behind them with a golden net?

From Bloomberg:

Fed officials are urging banks to raise capital and operate with less debt to revive financial markets and the economy buffeted by the 10-month credit contraction.

The turmoil has led the world’s biggest banks and brokerages to report more than $386 billion in losses and writedowns. Financial-services firms have raised $283 billion to cover the losses, according to data compiled by Bloomberg.

“We expect bank holding companies to continue to report weak earnings and further asset valuation writedowns” in the coming months, Kohn said in remarks for a hearing on the banking industry. Banks aren’t increasing reserves for losses enough to keep pace with problem assets, he said, while reiterating the Fed’s call for raising capital and reducing dividends.