Liquidity Update

Regions and Chase have begun canceling unsecured fed funds lines with their downstream banks, according to several well-placed sources. While our Primary Liquidity calculations do not include these borrowing lines, the Secondary Liquidity calculations do. As the current credit market mess unfolds, it is becoming clear that regulators and bankers alike should focus more on primary sources of liquidity, as secondary sources become unstable and may be unavailable at the time we need them most. If your Primary Liquidity ratio is below 15%, prepare to justify your risk posture during the next exam. Don’t count on the supposed availability of borrowing lines or the promised purchase of warehoused loans to provide a penny in a pinch.