Back of Envelope Bank Liquidity Calc
David Sidon, CPA
SOX / FDICIA / COSO Specialist; Managing Partner at Navis Partners LLC d/b/a The Navis Group; Banque Simulation Architect
Further to my "gorilla" post a few days ago, I got to thinking ....
Example Bank has $800 mil in assets, $80 in capital, for a 10% cap ratio. We have a little repetitional front-page "event" that, because of SVB and others takes on a heavier disaster-tinged edge resulting in a "run". Now what?
We can cover part with borrowings, but then it looks like we have to liquidate our investment portfolio. We have 20% of our balance sheet invested, but because of recent rate increases, we have $40 million in unrealized losses (just like most banks).
The back of the envelope calculation looks like this:
$800 in assets minus our $160 liquidation = $640.
Capital takes a $32 mil hit ($40 less a 20% tax cushion) - Capital now $48
Capital ratio shrinks from 10% to 7.5%. Liquidity skinny. Pretty lousy luck, but not the end of the bank.
For all of you touting "OK", have you done this calc? Just sayin ....
Our community banks can weather this in ways the big boys can't.
Sure wish Washington understood this!
Thanx for listening,
Dave
Chief Revenue Officer, Senior Vice President at COCC
1 年Who does this now a days?!? Thanks for sharing Dave!
Principal, Pastorello & Associates, LLC
1 年Thank you Dave for the smart, simple and ‘to the point’ example. Hopefully, Board members at all banks will be reminded of this (in much greater detail, of course) and the related sensitivity analyses that are specific to their organization’s needs, in the coming weeks/months.