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U.S. Banks Lack Liquidity to Withstand Crisis, Study Says

Dec. 17 (Bloomberg) -- U.S. banks representing more than half the industry’s assets need an additional $840 billion in cash on hand to cover short-term obligations if financial markets seize up again, according to a study.

The 11 financial firms surveyed, which have about $9.2 trillion in combined assets, need the funds in cash, Treasury bonds or other liquid assets to cover 30 days of debt costs and other expenses under international capital rules, according to a report released today by the New York-based Clearing House, which represents 18 of the largest lenders.

The so-called liquidity coverage ratio, a buffer of banks’ liquid assets regulators require in case markets freeze, improved from 59 percent in the fourth quarter of 2010 to 81 percent in the second quarter of this year, the Clearing House said. Three of 11 companies surveyed have a coverage ratio of 100 percent or more while eight have shortfalls.

“While this trend may, in part, reflect prudent liquidity management in view of uncertainty surrounding liquidity requirements, much of the LCR improvement is a result of strong deposit growth and reduced loan growth,” according to the report.

The group didn’t identify the banks in the survey. Members of the organization include JPMorgan Chase & Co., the biggest U.S. bank, and Bank of America Corp., the second-largest.

To contact the reporter on this story: Dawn Kopecki in New York at dkopecki@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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