“Earnings should benefit in 2023 from a large amount of noninterest bearing deposits from UB and cost synergies. For Juneja, that may seem like the kind of dip that could be a buying opportunity. However, like most of the bank stocks on Wall Street, USB shares dropped 20% in the past three trading days. For depositors, this means that the bank has nearly 1/4 more cash than is required to meet 30-days’ demand from an investors’ perspective, it means that the bank has a degree of insulation in event of a crisis. In the most important metric, for right now, JPMorgan’s Juneja notes that US Bancorp has a liquidity coverage ratio of 122%. The bank operates mainly in the West and Midwest of the US, and is considered by Federal regulators to be a ‘systemically important’ banking institution. This Minneapolis-based bank holding company is the country’s 5th largest banking institution, with $674.8 billion in total assets, more than 3,100 brick-and-mortar banking branches, and over 4,800 ATM machines. We’ll start with US Bancorp, the parent company of US Bank. Noting that each has the potential to generate double-digit returns for investors, the 5-star analyst rates them both as ‘Buys.’ Morgan analyst Vivek Juneja has highlighted two big names that have more than enough liquidity to cover rapid cash demands. Without such coverage, the bank cannot meet depositor demand, and will rapidly fall into insolvency.Īgainst this backdrop, J.P. Best practices in the banking industry would require an institution to keep a liquidity coverage ratio sufficient to cover all accounts that is, high-quality liquid assets suitable to cover cash demand for 30 days. The affected banks, especially SVB, were hit by a run – that is, depositors came calling to withdraw cash assets – and they lacked the liquid resources to meet that demand. In sort, these banks did not have enough liquidity to cover severe funding outflows. And rightly so, because at bottom, these banks collapsed due to a lack of liquid assets. In the wake of last week’s bank collapse – the fall of Silicon Valley Bank, and the related collapses of the crypto-centered Silvergate and Signature banks – there’s been a swirl of discussion around fractional reserves and liquidity coverage ratios (LCRs).
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