Bank of America: No Liquidity Problems Here, Move Along

| About: Bank of (BAC)
This article is now exclusive for PRO subscribers.

I can't tell you how many times I have read that Bank of America's (NYSE:BAC) recent sale of non-core assets points to a company in desperation and near bankruptcy (when in reality this divestiture has been talked about, and planned for the past several quarters.) Sorry to be the one to wake you up from your dream world people, but this "bankruptcy" you speak of, is not in the cards for Bank of America. I do not know how these rumors get started, get spread, and then become "common knowledge", but it is getting old. In my opinion, people rely too much on their emotions, and daily news headlines when it comes to Bank of America. I invite anyone who disagrees with the facts presented in this piece to refute my findings with quantitative evidence.

Bank of America's Excess Liquidity

Bank of America's 10-Q p.76 defines excess liquidity as:

We define excess liquidity as readily available assets, limited to cash and high-quality, liquid, unencumbered securities that we can use to meet our funding requirements as those obligations arise

Bank of America only classifies highly liquid and sellable assets as excess liquidity. Currently their excess liquidity sources are made up of cash (deposited at the Federal Reserve), U.S. debt securities, Agency MBS, U,S, Agency debt, and "a select group of non-U.S. government and supranational securities."

In order to access this source of liquidity Bank of America has two options.

  • It can outright sell the securities.
  • Or it can enter into a repurchase agreement with another party. This means that the bank receives cash immediately, but promises to buy the securities back at a later date.

Bank of America's liquidity actually increased $27 billion Y/Y, but declined sequentially due to reductions in their long-term debt.

Liquidity Available to Bank of America

As of the filing of their most recent 10-Q, Bank of America (along with its subsidiaries) had access to $363 billion in liquidity. The parent company had access to $119 billion, bank subsidiaries had access to $217 billion, and broker/dealers had access to $27 billion. Liquidity can be transferred from subsidiaries to the parent company, but only with regulatory approval (due to Bank of America's systemic importance this means the parent company has access to all $363 billion.)

On top of the $217 billion available to the bank subsidiaries, they are also able to pledge a huge amount of "unencumbered securities" (if needed) as collateral to certain Federal Home Loan Banks, and the Federal Reserve Discount Window giving them access to an additional $194 billion in cash.

Time to Required Funding

As stated in their 10-Q, Time to Required Funding is:

This debt coverage measure indicates the number of months that the parent company can continue to meet its unsecured contractual obligations as they come due using only its Global Excess Liquidity Sources without issuing any new debt or accessing any additional liquidity sources.

Bank of America's current Time to Required Funding is 27 months. That means they can pay all maturing unsecured debt and obligations for the next 27 months, without issuing any new debt.


Bank of America has access to $363 billion in immediate liquidity, has access to an additional $194 billion in cash if it is needed, and can operate for 27 months without needing additional funding. This leads me to believe that there is a miniscule chance of a Bank of America bankruptcy. Anyone who has a different interpretation of these facts, please let me know what conclusion you came to.

Disclosure: I am long BAC.