As shown in banking financial reports for the second quarter, the big commercial banks showed their belief in an economic improvement in the second half of 2009 and on the declining effects of bad loans and bank owned foreclosed homes by not increasing significantly their loan-loss reserves for the second quarter.

Financial reports released by the seven biggest commercial banks in the U.S., including Bank of America and Wells Fargo, showed that the banks only slightly built up their loan-loss reserves.

According to analysts, these loan-loss moves help boost bank profits.

Analysts also said that if unemployment rate does not soar in the second half of this year and foreclosed homes stops clobbering the housing market, banks would have been right on the dot in their loan-loss reserve decisions and in their strategies to boost their second quarter profits.

Some analysts say that the banks’ decision to boost their profits by not building up their loan-loss reserves at a time of record loan losses due to distressed foreclosure homes and commercial foreclosures can go either way. Banks could be wagering on recovery too early or they could be right on time.

Economists had predicted that the nationwide unemployment rate will surpass the 10 percent level in the coming months. They also predicted that bank foreclosed homes and other foreclosures will persist despite the rise in sales of existing homes in June because the slow recovery of home prices.

Additionally, the commercial real estate sector is showing signs of difficulties. Commercial real estate prices have dropped by 35 percent from their peak.

Losses due to bad loans continue to hit banks. JPMorgan Chase increased its charge-offs for bad loans to $6 billion, an increase from $4.4 billion in the first quarter of this year.

Wells Fargo also needs to increase its loan loss reserves, according to Paul Miller of FBR Capital Markets, because its losses due to bad loans, including losses due to bank foreclosed homes, have also been rising.

Based on analysis of data, the percentage of loan-loss reserves compared to assets for all the seven largest banks, except Citigroup, decreased. Citigroup’s loan-loss reserves rose to 128 percent compared to the first quarter.

According to analysts, the markets are allowing the slow buildups of loan-loss reserves. Along with the banks, market participants are also hoping that the effects of bank foreclosed homes and other foreclosures will slow down in the second half of the year.