WASHINGTON One of the industry's biggest challenges in the crisis was storing reserves fast enough to keep pace with bad credits. But almost six years later, the industry's proportion of loss protection to noncurrent loans is finally gaining momentum.
The reason appears to have less to do with reserving strategy than steadily improving loan quality. Loan-loss reserves continue to fall but noncurrent loans are dropping at a faster clip, giving the industry's so-called "coverage ratio" a boost. The ratio of loan-loss reserves to noncurrent loans rose more than 2.5 percentage points in the first quarter to 67.8%, the sixth straight quarterly increase, the Federal Deposit Insurance Corp. reported last week. It is the longest streak since the ratio rose for 11 consecutive quarters between 2002 and 2005.