The US recession and spike in unemployment in 2020 were the worst endured by the country since the Great Depression. Yet, US banks’ overall credit quality, credit losses and even their past-due payment loan rate at the end of 2020 had hardly changed from before the coronavirus struck. According to the Federal Deposit Insurance Corporation (FDIC), the ratio of debt written-off to that likely to be recovered was even lower in the fourth quarter of last year than it was in the same period of 2019: 0.41% compared with 0.54%.
There are many possible explanations for this situation. Banks generally entered the crisis highly capitalised and with a lot of liquidity. The Federal Reserve provided enormous monetary support during the crisis, back-stopping financial markets, buying up corporate bonds and keeping interest rates close to zero.
