Four Megabanks’ $33 Billion Loan Loss Warning Sets Off Confusion

The nation’s largest lenders booked giant losses in the second quarter—all without a wave of customer loan defaults or home foreclosures.

That’s on purpose. New accounting rules that went live in January force banks to capture losses before those losses catch them by surprise. At a time of 11% unemployment, rising coronavirus cases, but government stimulus money propping up the economy, banks are bracing for the worst even though it hasn’t happened yet.

The credit lossaccounting overhaul was supposed to make it easier for analysts to understand banks’ outlooks for the future. But the mix of doomsday scenarios ...