NBER’s New Report Claims that JP Morgan and Goldman Sachs will not Survive Any Bank Runs

The National Bureau of Economic Research (NBER) has recently published a report on the matter of recession research and duration. This paper has made an alarming interjection that other big banking enterprises in the USA will not be able to survive bank runs for a small duration as a month.

To make these assertions the researchers have conducted a stress test to check the liquidity and stability potential of big banking enterprises.

This paper has highlighted six major banking giants in the USA including JP Morgan and Goldman Sachs. The head of this research is Laurence Ball who hails from the Department of Economics at John Hopkins University.

This report has listed other banking behemoths including Bank of America, Wells Fargo, Citibank, and Morgan Stanley. The stress test in question measures the Liquidity Coverage Ratio or LCR.

Liquid Coverage Ratio (LCR)

LCR is a standardized method of measuring the total liquidity of a banking enterprise that has been around since 2017. Ball has talked to the media about this report and he claimed the LCR is used by banking enterprises that are used to check the stability and available liquidity of a banking enterprise.

Traditional banks are under a legal obligation to perform this stress test after every 30-day cycle is completed.

This stress test has been around since the 2008 financial crisis to detect any serious conditions beforehand. In addition to LCR, banks also calculate High-Quality Liquid Assets or HQLA. HQLA is used to measure the cash outflow available for monetization.

These LCR ratings for the bank in the context of HQLA should be more than least 100%. However, Ball has claimed that the LCR rules are still not projecting toward the same financial crisis as in 2008.

The LCR report in question was published in 2020 but it has resurfaced as a way to shed light on the $1 trillion deposit merger of state banking enterprises.

The media has limited its attention to the case of SVB but many other traditional banks are hanging in the balance. The stocks of some financial enterprises such as First Republic have lost 15% of market value.

Meanwhile, some smaller banking enterprises such as PacWest Bancorp have lost $30 billion plummeting by 17%. On the other hand, the banking sector index for regional institutions has also dipped by 6%.

Investors are looking at San Francisco Federal Reserve Bank which might be lurking in the danger zone. It is important to note the difference in accessibility, internet connectivity, and online banking options that the report has not taken into consideration yet.