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Liquidity Risk at Large U.S. Banks

Laurence Ball

No 28124, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies liquidity risk at the six largest U.S. banks. The starting point is the stress tests performed under the Liquidity Coverage Ratio (LCR) regulation, which compare a bank’s liquid assets to its loss of cash in a stress scenario that regulators say is based on the 2008 financial crisis. These tests find that all of the large banks could endure a liquidity crisis for 30 days without running out of cash. This paper argues, however, that some of the assumptions in the LCR stress scenario are not pessimistic enough to capture what could happen in a crisis like 2008. The paper then proposes changes in the dubious assumptions and performs revised stress tests. For 2019 Q4, the revised tests suggest it is unlikely that any of the six banks would survive a liquidity crisis for 30 days. This negative finding is most clear-cut for Goldman Sachs and Morgan Stanley.

JEL-codes: G21 G24 G28 (search for similar items in EconPapers)
Date: 2020-11
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fmk and nep-rmg
Note: CF ME
References: Add references at CitEc
Citations:

Published as Laurence Ball, 2023. "Liquidity Risk at Large U.S. Banks," Journal of Law, Finance, and Accounting, vol 7(2), pages 229-272.

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