Oil rout: worse pain lies ahead for US banks

New York

LOW oil prices are rattling global markets and destabilising economies around the world. They are also posing one of the first big tests to the US banking system since the financial crisis.

Banks of all sizes are marking down the value of loans and setting aside reserves to absorb additional losses as oil producers struggle to pay their debts.

On Tuesday, Bank of America said provisions for credit losses increased US$264 million in the fourth quarter, driven by the downturn in the energy sector. Citigroup, Wells Fargo and JPMorgan Chase reported last week that oil issues also weighed on fourth-quarter earnings.

While the energy downturn is cutting into profits, it is not threatening the big banks' capital cushions - a testament, analysts say, to the rigorous regulations put in place to pro…