This article, originally published at 8:50 a.m. on Tuesday, Feb. 23, 2016, has been updated with analyst commentary and market data.
JPMorgan Chase (JPM) , the largest U.S. bank, is expanding its reserves against potential loan defaults involving energy companies by 60%, to a total of $1.3 billion.
Should oil prices remain around $25 for 18 months, the New York bank might have to increase reserves by an additional $1.5 billion, according to a presentation for the company's annual investor summit on Tuesday. That could happen: Goldman Sachs predicted last year that oil might drop as low as $20 a barrel, and it has traded between $25 and $30 for half of the trading days this month.
The potential reserve increase is JPMorgan's best estimate and incorporates multiple downgrades of borrowers' credit ratings, Chief Financial Officer Marianne Lake told investors. "The lower down you get in prices, the more stress that you see," she said.
JPMorgan, which will complete its 60% boost by the end of March, and its peers nationwide are facing increased scrutiny from stockholders as falling oil prices make it tougher for energy firms to repay money borrowed when prices were spiking.
That has sparked fears -- in worst-case scenarios -- of another recession or repeat of the financial crisis, when mortgage-loan defaults led to the collapse of investment bank Lehman Brothers and necessitated massive government bailouts of finance firms.
Such concerns appear vastly overblown, according to regulators, executives and credit-ratings firms, not least because the oil- and gas-loan market is a fraction of the size of the mortgage market.
Further, the biggest banks -- those large enough that their failure could threaten the broader economy -- appear better positioned than smaller regional firms operating in areas whose economies are dominated by energy companies, ratings firm Moody's has said.
At the end of last year, JPMorgan was the best in class in the ratio of energy loans to total lending, at 1.5%. The measure was 3.1% at Goldman, 3.3% at Citigroup and 2.4% at Bank of America, a report earlier this month showed.