The National Economic Research Institute in the United States has been one for 2 years document published which revealed that none of the big banks would survive a serious wave of bank failures. This institute is the one that, by the way, is used to strengthening the beginning and end of recessions. According to the authors of the analysis, none of the gigabanks of JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley would survive a liquidity crisis for even 30 days.
The banks are counting on the 2008 crisis, but the events would take place much faster than that
The case for collapse is most clear in the case of Goldman Sachs and Morgan Stanley. This was stated by the researchers on the basis of a stress test corresponding to the so-called Liquidity Coverage Ratio (LCR) regulation. The provision adopted in 2017 expects banks to regularly simulate what happened during the 2008 banking crisis. In this simulation, they have to look at the losses incurred in a 30-day stress situation. Plus, they have to check the proportion of their particularly high-quality liquid assets, which can help them overcome difficult periods. According to the expectation, the liquidity coverage ratio of banks with their highly liquid assets should be 100% of the loss. According to the document, the banks comply with the regulations from this point of view, but according to the authors of the document, the expected scenario is not strict enough and is pessimistic.
For example, under the regulatory stress scenario, there would still be significant inflows of money to banks in a crisis situation. This document was picked up once more because in the United States, in addition to the three banks that recently went bankrupt (e.g. Silicon Valley Bank), others were on the brink of collapse. For example, First Republic or PacWest Bancorp shares also began to plummet. These are following the Ministry of Finance came up with the idea of even stricter regulation of the insurance of bank deposits. And this will be a very important question, since Silicon Valley Bank also had a maximum of one day. If so, what is the point of the stress test? Because in today’s fast-paced world, the news of a bank’s liquidity problem would spread in seconds, the exception wouldn’t even last too long, so probably no bank would pull it for 30 days.
