Accessible Version
The interaction of bank leverage, interest rate risk, and runnable funding, Accessible Data
Figure 1. Longer maturity assets and lower capital
The left panel of figure 1 plots the median (dark orange, solid line) and interquartile range (black, dashed lines) of the weighted average maturity from 2015:Q1 – 2024:Q1 based on all Call Report filers. The range remained stable from 2015:Q1 – 2019:Q4, with a 75th percentile of just above 7 years, a median of about 5 years, and a 25th percentile of about 4 years. The interquartile range began to increase in 2020. By 2022, the 75th percentile of the weighted average maturity climbed to a peak of just under 9 years, while the 25th percentile rose to just under 5 years. The range has gradually edged down since then, and as of 2024:Q1, stood modestly above its pre-pandemic levels.
The right panel of the figure plots aggregate common equity tier 1 ratios (solid, black line) and market-adjusted common equity tier 1 ratios (dashed, red line) from 2015:Q1 – 2024:Q1 for most publicly-traded banks. The aggregate CET1 ratio remained stable, at around 11 to 12 percent, during the entire sample period. The aggregate MACET1 ratio remained around 11 to 12 percent until 2018. The ratio increased to a high of about 14 percent in 2021, before decreasing to a low of about 6 percent in 2022. The aggregate MACET1 ratio has since trended upward, but remains near 8 percent.
Note: Left panel is an approximation of the repricing and maturity distribution of bank assets through time. The distribution is based on estimates of individual bank’s asset maturity, which are constructed by balance-weighting the midpoint of each repricing and maturity bucket from the distribution loans and securities in Call Reports. Right panel includes most publicly-traded banks, which represent about two-thirds of banking system assets. MACET1 ratios are equal to CET1 ratios less fair value losses on all securities and loans. Securities fair value losses are sourced from FR Y-9C and Call Reports. Loan fair value losses are sourced from S&P Global Capital IQ Pro.
Source: FR Y-9C, Call Reports, S&P Global Capital IQ Pro, Author Calculations.
Figure 2. Components of useable liquid assets and runnable liabilities
Figure 2 plots the aggregate components of lower friction liquidity, cash (black, solid line), available-for-sale securities (blue, solid line), uninsured deposits (red, dashed line), and short-term wholesale funding (dark orange, dashed line), as a percentage of aggregate assets from 2018:Q1 – 2024:Q1 based on a balanced panel of FR Y-9C and Call Report filers with at least $1 billion in assets. Cash and uninsured deposits increased substantially from 2020:Q1 – 2021:Q4, after which cash decreased but remained slightly above pre-pandemic levels. Uninsured deposits remained elevated until 2023:Q1, as they were replaced in aggregate by short-term wholesale funding. Available-for-sale securities decreased from 15 to roughly 10 percent of assets between 2021:Q4 - 2024:Q1, and remain at their lowest level over the sample period.
Note: Includes all banks with at least $1 billion in assets.
Source: FR Y-9C and Call Reports.
Figure 3. Distribution of LFL Ratios
The left panel of figure 3 plots the median (dark orange, solid line) and interquartile range (black, dashed lines) of lower friction liquidity ratios from 2018:Q1 – 2024:Q1 based on a balanced panel of FR Y-9C and Call Report filers with at least $1 billion in assets. The interquartile range of LFL ratios increased modestly from 2018:Q1 – 2019:Q4. At 2019 year-end, the 25th percentile was about 0.5, the median was around 0.7, and the 75th percentile was about 1. The distribution increased materially in 2020 and remained high through 2021. During this period, the 75th percentile climbed to about 1.2, while the median was around 0.8, and the 25th percentile was about 0.5. The distribution declined significantly in 2022. The 75th percentile fell to about 0.9, the median to about 0.5, and the 25th percentile to about 0.3. LFL ratios have increased modestly since 2022, but remain below pre-pandemic levels.
The right panel of figure 3 compares the distribution of LFL ratios in 2021:Q4 (grey bars, solid black outline) and 2022:Q4 (white fill, dashed red outline). In 2021:Q4, there was a large concentration of firms with LFL ratios between 0.5 and 1.0. LFL ratios declined materially in 2022:Q4, as reflected by the leftward shift in the distribution. In particular, there was large growth in the number of firms with LFL ratios less than 0.5.
Note: LFL is the ratio of cash and useable AFS securities to uninsured deposits and other runnable funding. Both charts include panel of banks with at least $1 billion in assets. The right panel is trimmed to show banks with LFL ratios less than 2.
Source: FR Y-9C, Call Reports, and Author calculations.
Figure 4. LFL Decomposition for low and high LFL banks
The left panel of figure 4 plots the percentage point contribution of each of the four components – cash (black outline, black fill), available-for-sale securities (dotted outline, blue fill), uninsured deposits (short-dash, red fill), and short-term wholesale funding (long-dash, gold fill) – to changes in LFL ratios for firms with LFL ratios less than 0.33 as of 2022:Q4. The sample is based on a balanced panel of FR Y-9C and Call Report filers with at least $1 billion in assets. Prior to 2021:Q4, uninsured deposit inflows were largely outweighed by cash and available-for-sale security holdings. Beginning in 2021:Q4, the outsized reduction in cash and available-for-sale security holdings exerted significant downward pressure on LFL ratios for this group of banks until early 2023.
The right panel of figure 4 plots the percentage point contribution of each of the four components – cash (black outline, black fill), available-for-sale securities (dotted outline, blue fill), uninsured deposits (short-dash, red fill), and short-term wholesale funding (long-dash, gold fill) – to changes in LFL ratios for firms with LFL ratios greater than 0.33 as of 2022:Q4. The sample is based on a balanced panel of FR Y-9C and Call Report filers with at least $1 billion in assets. Prior to 2021:Q4, uninsured deposit inflows were largely outweighed by cash and available-for-sale security holdings. Beginning in 2021:Q4, the reduction in cash and available-for-sale security holdings slightly exceeded uninsured deposit outflows, which on net exerted downward pressure on LFL ratios for this group of banks until early 2023.
Note: Includes balanced panel of banks with at least $1 billion in assets excluding GSIBs.
Source: FR Y-9C, Call Reports, and Author calculations.
Figure 5. Cumulative returns by LFL group
Figure 5 plots the average cumulative daily stock returns from January 3rd, 2023 to May 31st, 2023 separately for firms with LFL ratios less than 0.33 as of 2022:Q4 (red, dashed line) and firms with LFL ratios greater than 0.33 as of 2022:Q4 (black, solid line). The sample consists of 293 publicly traded banks and excludes GSIBs and failed banks. Average cumulative returns are similar across groups until the failure of Silicon Valley Bank on March 8th, 2023 (black, vertical dashed line). After this date, banks with low LFL ratios significantly underperform their peers, as reflected by the divergence in the cumulative returns.
Note: LFL is the ratio of cash and useable AFS securities to uninsured deposits and other runnable funding. Chart shows the simple average of cumulative returns by LFL grouping. Sample includes 293 publicly traded banks.
Source: FR Y-9C, Call Reports, S&P Global Market Intelligence, and Author Calculations.