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The Credit Risk and Regulatory Risk trade-off

Updated: Jan 30, 2022

It is interesting to see the early 2020 big pandemic provisioning “jump into the credit loss unknown” and the subsequent “slow reserve release as government stimulus is revealed” as interpreted from the “big 4“ bank charts.

My question relates to consumer protection. It seems like the U.S. Government’s implied pandemic “deal” is:

“We will backstop bank credit losses with stimulus AS LONG AS banks take care of their customers.”

It is yet to be seen HOW MUCH of the bank credit reserves should be diverted to the regulatory remediation typically associated with NOT taking care of their customers.

Consumer protection has the potential to be either a “Pay me now” or “Pay me later” proposition. It seems the CFPB has been gearing up for “Pay me later” … and today “later” is quickly becoming “now!”


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