New York Fed Finds Bank Liquidity Stress at 2014 Level

A New York Federal Reserve study published Nov. 12 found that U.S. banks’ modeled liquidity stress had reached a level last seen in 2014. The study used bank holding company data through the second quarter of 2026.

The liquidity stress ratio remained moderate by historical standards, at slightly more than half its peak in the third quarter of 2007. It has risen since early 2022.

The ratio compares liabilities based on their likelihood of being withdrawn, along with off-balance-sheet exposures, with assets ranked by how quickly they can be converted into cash. The increase reflected a decline in liquid assets and a rise in less stable funding and off-balance-sheet exposures.

The study also modeled the effect of a repeat of the 2022 interest-rate shock. The estimated capital gap was $151 billion in the second quarter, down from $161 billion a year earlier. The figure represents the capital needed after the hypothetical shock to bring each bank’s Tier 1 common equity ratio to at least 10% of risk-weighted assets. The calculation included unrealized gains and losses on securities.

The $151 billion figure is a model benchmark. It does not represent current realized losses or a regulatory breach. The study did not identify a Bitcoin-specific financing shock.

The potential connection to Bitcoin runs through bank lending and financial intermediaries. Banks facing higher or less reliable funding costs could tighten lending standards. Companies that depend on bank credit could then have less capacity to hold risky assets, including Bitcoin. The New York Fed study did not test this connection.

The Federal Reserve’s October lending survey, which covered conditions in the third quarter, found that approval standards had tightened on a net basis for every category of nonbank financial borrower included in the survey. Standards for large and middle-market business loans were little changed.

A Federal Reserve study published in February found that weaker bank capital measured at market values and greater reliance on uninsured deposits can increase banks’ funding costs. The effects varied by economic scenario. An additional funding shock reduced profitability and capital in a stagflation scenario, while its effect was limited in a severe recession with sharply falling interest rates.

An August 2023 International Monetary Fund working paper found that U.S. monetary tightening reduced prices across a common group of crypto assets through a risk-taking channel similar to equities. Applying that relationship to the New York Fed’s bank-vulnerability measures remains an inference.

The New York Fed’s analysis does not cover conditions after the second quarter. The effective federal funds rate was 3.88% on Nov. 11, and the 10-year Treasury yield was 4.98% on Nov. 10, according to Federal Reserve data. Those rates do not capture all financing conditions because banks can restrict credit while the central bank’s policy rate remains unchanged.