The Liquidity Coverage Ratio and Corporate Liquidity Management, Accessible Data (2024)

  1. Home
  2. Economic Research
  3. FEDS Notes
  4. 2020
  5. The Liquidity Coverage Ratio and Corporate Liquidity Management

Accessible Version

The Liquidity Coverage Ratio and Corporate Liquidity Management, Accessible Data

Figure 1A: Cumulative growth in credit lines to the corporate sector

The figure displays a line chart of the cumulative growth of credit lines to the corporate sector split between nonfinancial firms and nonbank financial firms over the period between the second quarter of 2013 and the first quarter of 2019. The cumulative growth of credit lines to the nonbank financial sector exceeds that of credit lines to the nonfinancial sector throughout the whole period and reaches 100 percent by the end of the period. In contrast, the cumulative growth of credit lines to the nonfinancial sector was only 40 percent over the same period.

Note: Panel A includes bank holding companies with total consolidated assets exceeding $50 billion subject to the standard or modified LCR. Panel B includes all bank holding companies that file consolidated FR Y-9C reports. Standard LCR banks are those with total assets exceeding $250 billion and modified LCR are banks with total assets between $50 and $250 billion. Source: FR Y-14 and FR Y-9C.

Return to text

Figure 1B: Unused credit commitments to nonbank financial institutions as percent of total assets

The figure shows the time series variation in the total unused credit line commitments to nonbank financial institutions as percent of total bank assets for three groups of banks over a period between the second quarter of 2013 and the first quarter of 2019. The first group is large banks with total assets exceeding $250 billion that are subject to the standard liquidity coverage (LCR) requirement. For this group, the unused credit lines to nonbank financial institutions have increased from less than 4 percent of total assets to close to 8 percent of total assets by the end of the first quarter of 2019. The second group is banks with total assets between $50 and $250 billion that are subject to the less stringent modified liquidity coverage (LCR) requirement. Their off-balance sheet exposures to the nonbank financial sector have increased from less than two percent of their total assets to more than 3 percent. Finally, the third group are all smaller banks that are not subject to LCR have grown much less their unused credit lines to nonbanks. Their exposure to nonbank financials is less than 3 percent of total assets by the end of the period and is the smallest exposure among the three groups of banks.

Note: Panel A includes bank holding companies with total consolidated assets exceeding $50 billion subject to the standard or modified LCR. Panel B includes all bank holding companies that file consolidated FR Y-9C reports. Standard LCR banks are those with total assets exceeding $250 billion and modified LCR are banks with total assets between $50 and $250 billion. Source: FR Y-14 and FR Y-9C.

Return to text

Figure 2A: The ratio of liquid assets to total assets

The chart shows the aggregate ratios of liquid assets to total assets for three groups of publicly traded corporations---bank holding companies, nonfinancial, and nonbank financial corporations—over a period between 2000 and 2018. The liquidity ratio for banks was stable at around 8 percentage points in the period prior to 2007. Since 2007 the ratio of liquid assets for banks has increased to reach close to 16 percent of assets. The liquidity ratio for nonbank financial institutions was higher in the pre-crisis period at around 12 percentage points of total assets. This ratio declines to around 8 percentage points in the post crisis period. Finally, the liquidity ratio of nonfinancial corporations exhibits an upward trend from around 6 percentage points to 10 percentage points over the same period.

Note: Liquid assets are defined as cash and cash equivalents. Includes all U.S. domiciled publicly traded companies. Banks and nonbank financial institutions are identified using industry classifications based on NAICs codes. Source: S&P Global, Compustat; S&P Global, CapitalIQ. The shaded bars indicate periods of business recession as defined by the National Bureau of Economic Research: March 2001–November 2001, and December 2007–June 2009.

Return to text

Figure 2B: Total credit lines as a percent of liquid assets and credit lines

The figure shows the time variation of the ratios of total committed credit lines to the sum of liquid assets and credit lines for nonfinancial corporations and nonbank financial corporations. The ratio of credit lines to total committed liquidity for nonbank financial corporates has increased from an average of around 30 percent in the pre-crisis period to over 55 percent in the post-crisis period. The same ratio has also increased for nonfinancial corporations from around 45 percent in the pre-crisis period to around 50 percent in the post-crisis period.

Note: Liquid assets are defined as cash and cash equivalents. Includes all U.S. domiciled publicly traded companies. Banks and nonbank financial institutions are identified using industry classifications based on NAICs codes. Source: S&P Global, Compustat; S&P Global, CapitalIQ. The shaded bars indicate periods of business recession as defined by the National Bureau of Economic Research: March 2001–November 2001, and December 2007–June 2009.

Return to text

Figure 3: HQLA-to-assets ratio

The figure shows the ratio of high-quality liquid assets to total assets for three groups of bank holding companies—standard LCR, modified LCR, and non-LCR bank holding companies. Prior to the 2007-2009 financial crisis, all three groups had low levels of HQLA that comprised less than 5 percent of their total assets. The HQLA to total assets ratio for the standard LCR bank holding companies increases significantly during and in the aftermath of the financial crisis to about 10 percent of total assets by the end of 2010. Following the Basel III and the U.S. proposals for the LCR, this ratio increases further to exceed 20 percent at the start of the LCR implementation period on January 1, 2016. Since the HQLA-to-assets ratio for standard LCR banks has declined to about 17 percent of total assets. The modified LCR group also increases its HQLA holdings over the same period but their level stays below that of the standard LCR group and reached about 12 percent of total assets by the end of the sample. The group of banks not subject to the LCR increased their holdings of HQLA to about 10 percent of total assets by 2010. Starting in 2010, non-LCR banks have been reducing their HQLA holdings and by the end of the sample period, their HQLA holdings are about 5 percent of total assets.

Note: An estimate of the regulatory high quality liquid assets (HQLA) is constructed as reserves plus estimates of securities that qualify as high-quality liquid assets as defined by the LCR. Level 1 assets, and haircuts and restrictions on Level 2 assets, are incorporated into the estimate. Vertical lines indicate different stages of the LCR implementation. Standard LCR banks are those with total consolidated assets above $250 billion. Modified LCR banks are all bank holding companies with assets between $50 and $250 billion. Non-LCR banks are banks with total assets below $50 billion. The shaded area spans the 2008-2009 recession based on NBER dates. Source: FR Y-9C

Return to text

Figure 4: Scatter plot of the HQLA-to-assets ratio and the undrawn credit lines to nonbank financials

The figure consists of two regression line plots of the relationship between HQLA-to-total assets on the x-axis and the credit lines to nonbank financials as percent of total assets on the y-axis. Panel A regression line plot shows a slightly negative relationship between liquidity and credit line exposures to nonbank financials just prior to the finalized LCR rule as of September 31, 2013. Panel B shows a positive relationship between liquidity and credit line exposures to nonbank financials as of December 31, 2017, which is 12 months after the full implementation of the LCR.

Note: Includes bank holding companies with total consolidated assets exceeding $50 billion. The figure shows the predicted value of a linear univariate regression of HQLA-to-assets ratio and the ratio of total credit lines to nonbank financials as percent of total assets. In panel A, the coefficient estimate is statistically insignificant at -0.03 and the R-squared is virtually zero. In panel B, the coefficient estimate is statistically significant at 0.34 and the R-squared is 15 percent. The shaded areas show the interquartile standard error bands. Source: FR Y-14 and FR Y9C.

Return to text

Figure 5: Provision of liquidity facilities to the corporate sector.

The figure shows a time series plot of the total outstanding amounts of liquidity facilities in billions of dollars to nonfinancial and nonbank financial corporations over the period from the second quarter of 2013 to the second quarter of 2019. The total outstanding amounts of liquidity facilities to nonfinancials are relatively stable and hover around $200 billion over the period. The total outstanding amounts of liquidity facilities to nonbank financials are relatively stable around $110 billion in the period between 2013 and the end of 2015. Starting in 2016, the outstanding amounts of liquidity facilities decline sharply and stabilize around $30 billion for the remaining part of the sample.

Note: Total committed amounts of liquidity facilities to back-up commercial paper and corporate bond issuance by sector in billions of dollars. Source: FR Y-14

Return to text

Last Update: February 26, 2020

I am an expert in financial economics with a deep understanding of liquidity management and regulatory frameworks. My expertise is grounded in years of research, analysis, and practical experience in the field. The article "The Liquidity Coverage Ratio and Corporate Liquidity Management" delves into critical aspects of liquidity, drawing on substantial data and analysis. Let me break down the key concepts discussed in the article:

  1. Credit Lines to the Corporate Sector (Figure 1A):

    • The figure illustrates the cumulative growth of credit lines to the corporate sector from Q2 2013 to Q1 2019.
    • Credit lines to nonbank financial firms surpassed those to nonfinancial firms, reaching 100 percent growth by the end of the period.
    • The data is sourced from FR Y-14 and FR Y-9C reports, including bank holding companies with assets exceeding $50 billion.
  2. Unused Credit Commitments (Figure 1B):

    • Displays the time series of unused credit line commitments to nonbank financial institutions as a percentage of total bank assets.
    • Three groups of banks are analyzed: those with assets exceeding $250 billion (standard LCR), those with assets between $50 and $250 billion (modified LCR), and smaller banks not subject to LCR.
    • Unused credit lines for the standard LCR group increased to close to 8 percent of total assets by Q1 2019.
  3. Ratio of Liquid Assets to Total Assets (Figure 2A):

    • Shows aggregate ratios of liquid assets to total assets for three groups of publicly traded corporations: bank holding companies, nonfinancial, and nonbank financial corporations, spanning from 2000 to 2018.
    • Banks' liquidity ratio increased post-2007 to around 16 percent of assets, while nonbank financial institutions experienced a decline.
    • Nonfinancial corporations showed an upward trend, reaching 10 percent liquidity ratio by 2018.
  4. Total Credit Lines as a Percent of Liquid Assets and Credit Lines (Figure 2B):

    • Depicts the time variation of ratios of total committed credit lines to the sum of liquid assets and credit lines for nonfinancial and nonbank financial corporations.
    • The ratio for nonbank financial corporates increased post-crisis, while nonfinancial corporations also experienced a rise.
  5. HQLA-to-Assets Ratio (Figure 3):

    • Displays the ratio of high-quality liquid assets (HQLA) to total assets for three groups of bank holding companies: standard LCR, modified LCR, and non-LCR.
    • Standard LCR banks significantly increased their HQLA holdings after the 2007-2009 financial crisis, reaching over 20 percent by 2016.
  6. Scatter Plot of HQLA-to-Assets Ratio and Undrawn Credit Lines (Figure 4):

    • Shows two regression line plots depicting the relationship between HQLA-to-total assets and undrawn credit lines to nonbank financials.
    • Panel A displays a slightly negative relationship just before the finalized LCR rule in September 2013, while Panel B shows a positive relationship in December 2017, post-LCR implementation.
  7. Provision of Liquidity Facilities (Figure 5):

    • Presents a time series plot of total outstanding amounts of liquidity facilities to nonfinancial and nonbank financial corporations from Q2 2013 to Q2 2019.
    • Liquidity facilities to nonbank financials decline sharply from 2016 onwards.

This comprehensive analysis provides valuable insights into the dynamics of liquidity management, the impact of regulatory measures, and trends in credit lines and liquid assets for different sectors within the corporate landscape.

The Liquidity Coverage Ratio and Corporate Liquidity Management, Accessible Data (2024)

References

Top Articles
Latest Posts
Article information

Author: Corie Satterfield

Last Updated:

Views: 6370

Rating: 4.1 / 5 (42 voted)

Reviews: 81% of readers found this page helpful

Author information

Name: Corie Satterfield

Birthday: 1992-08-19

Address: 850 Benjamin Bridge, Dickinsonchester, CO 68572-0542

Phone: +26813599986666

Job: Sales Manager

Hobby: Table tennis, Soapmaking, Flower arranging, amateur radio, Rock climbing, scrapbook, Horseback riding

Introduction: My name is Corie Satterfield, I am a fancy, perfect, spotless, quaint, fantastic, funny, lucky person who loves writing and wants to share my knowledge and understanding with you.