The current period is dominated by earnings reports for Q1 from most financial institutions including the world’s largest banks and the results are set to be dire due to the real life macroeconomic stress test that banks are currently facing.

The largest impact on bank earnings will be and have already shown to be loan loss provisions, which are expected to reach a total of USD50bn in the US and Europe alone. The resulting behaviour of banks will be an important indicator to supervisory authorities as to how far regulation has come in ensuring the solidity of the financial system.

So far the signs are good with most banks reporting increased lending activity during recent months and thus not scaling back on credit growth, which is exactly what regulators want – namely that borrowers of good quality are still able to obtain credit even in bad times, which was a problem during the financial crisis.

However, there is currently a fairly large discretion as to the size of the provisions taken and especially with respect to the macroeconomic scenarios used to model these, meaning that the hit on profits will also diverge between banks.

For example, Deutsche Bank, according to the Financial Times, increased its credit provisions by just a factor of 3, while UBS’s increased by a factor of 13. Also, it is not clear whether current lending growth can be sustained meaning that in the EU, regulators have introduced various measures in order to limit the hit taken on profits by introducing more lenient requirements for some exposures and pushing upcoming regulation back a few years.