Except loan reserves have nothing to do with that and is a balance between working capital and reserve. They just adjust the reserves higher. This is literally the system working as intended written with a headline to collect clicks for profit.
The Financial Times doesn't bait for clicks. It's written for subscribers who should understand the difference between reserves and capital in shorthand with respect to bad debts. A large part of why I love the FT is its articles are short. That means I can process them quickly. But it comes at the cost of context.
Subscription services are all about engagement and capture, both of which require clickbait to survive. This headline is absolutely designed to attract a click by harkening to financial collapse rather than crazy high capital requirements on mortgage books post financial crisis requiring mechanical recapitalization as interest rates and market stress take a toll.
> headline is absolutely designed to attract a click by harkening to financial collapse
No, it's not. I read it this morning and passed it over. Then I saw it on HN and realised we'd have a clusterfuck. A technical analogy might be someone conflating an outage with the service going under.
Why? Do you really think banks haven’t realized commercial loan debt isn’t lined up for major losses and haven’t securitized and hedged with CMBS credit default swaps? The article talks about the models assume historical losses - but this is an exact replay of residential subprime modeling. You would have to be a very dense portfolio manager to not have your own risk models aside from the regulatory mandated models for losses. In fact from my years trading on a major commercial and residential desk leading up to the financial crisis I emphatically know they all do, and even more so after the crisis with the roll out of relatively boned headed reg collateralization models. With SVB eating in it with unhedged loan portfolios in the rates spaces you better believe risk managers and the government have been poring over portfolio exposures to rates and credit shocks. The commercial mortgage bloodbath is executing in extreme slow motion over what’ll likely be a decade. No one is being caught unaware and unprepared.
That’s why it’s clickbait. The reaction here is exemplary. This isn’t doom this is the bread and butter ebb and flow of a banks loan book but without any sophistication on the reality of how banks manage these sorts of things. The regulatory loss provisions aren’t the only line of defense and it’s not even the first line. It reads as if banks were caught unaware of this looming crisis in commercial mortgages and there’s some unthinking machine responding only to the bare minimum regulatory requirements. The hand wringing about the financial crisis, as if no one learned anything and bank trading operations are run by total morons… if only they would listen to a bunch of programmers things could be different, etc.
Doom sells subscriptions, engagement is driven by dire headlines and articles that twinge out anxieties. The mechanical realities are boring, and are covered in trade media not general financial news.
