What About Liquidity?Guggenheim securities analyst Marty Mosby says "the stress tests don't sufficiently address liquidity risk, and they are not intended to. They only say if the banks will have enough capital."
In a report on May 13 that included seven main ideas that the big banks could present as alternatives to breaking them up, while ending the "too big to fail" perception, Mosby wrote that "a lack of liquidity is what created the last financial crisis, and no amount of capital can substitute for a lack of liquidity." Mosby suggested that the Federal Reserve require large banks to "maintain an additional Liquidity Coverage Ratio focused on short-term liquidity." "In addition to looking at a full retail run on a bank, Large Cap Banks should maintain 125% coverage of short-term borrowed funds with liquid assets that could always be sold within 30 days." That's stronger short-term liquidity coverage than what will be required under Basel III when its liquidity requirement is fully phased in, as discussed below.