One major question posed by recent events is whether the issues SVB faced would’ve been caught had EGRRCPA not been passed (which raised the threshold for what qualifies as a SIFI). Bill Nelson at the Bank Policy Institute has an illuminating post arguing that the liquidity coverage ratio (LCR), which would have applied to SVB had it been classified an SIFI, would not have been triggered. People like former Senator Toomey (a cosponsor of the 2018 act) have asserted that the LCR wouldn’t have caught SVB. Here’s the logic I think he, and others, is relying on.
The LCR for the largest institutions is designed to cover 30 days of stress. For smaller and less complex institutions, the LCR’s stress assumptions are relaxed by multiplying projected net cash outflows by 70 percent. Absent S. 2155, SVB would have been subject to this reduced LCR requirement. To estimate SVB’s LCR, it
Keep reading this article on Econbrowser Blog - James Hamilton & Menzie Chinn.