This morning, The Journal reported that U.S. banks may see an uptick in profitability this year as anticipated loan losses due to the COVID-19 downturn are not expected to materialize as initially suspected. In the wake of the pandemic, U.S. banks maintained a conservative view regarding the downturn, setting aside billions of dollars in reserves to cover loans initially expected to underperform or default. According to The Journal, data from the Federal Deposit Insurance Corp. shows that U.S. banks had $236.6 billion in total reserves in December, approximately twice the pre-pandemic level. However, the economy has primarily performed better than expected, outperforming internal forecasts at some central banking institutions in the U.S. Between the acceleration of vaccinations across the country and the recently signed $1.9 trillion stimulus package, it appears the worst of the economic fallout from COVID-19 is more-or-less behind the country. Given the positive data, U.S. banks are cautiously optimistic with market participants expecting some institutions to reduce the massive stockpile of cash reserves set aside for loan losses. The reversal would flow through to the bank’s profitability during the year in which they are reversed, but this would be a transitory relief as revenue is largely anticipated to decline at the four largest U.S. banks this year given the reduced lending and market activity during the pandemic. Early on, most executives were relatively pessimistic given the uncertainty surrounding COVID-19. While prudent, it appears improving economic data, upward forecast revisions for GDP and unemployment, and positive vaccination data have provided U.S. banks with an optimistic outlook for 2021.