BofA's U.S. Holdings Should Provide Boost

Bank of America Corp. has the most U.S. government-guaranteed securities among large bank-holding companies, putting the Charlotte, N.C., bank in a better position to comply with a rule designed to ensure big banks are able to weather financial crises without running short of cash.

According to data from SNL Financial, Bank of America has $136.99 billion of Treasury, agency and other U.S. government-guaranteed securities. These are considered Level-1 assets under the rule, meaning that they would be given no haircut when companies and regulators calculate the so-called "liquidity coverage ratio," a safety measurement for banks.

The liquidity rule requires banks to hold enough liquid assets--originally limited mostly to cash and government bonds--to be able to withstand an intense 30-day crisis similar to what occurred in fall 2008. Liquid assets must total 100% of the funds a bank theoretically would lose access to in a crisis.

According to SNL, Citigroup Inc. carried the second-highest amount of U.S. government-guaranteed securities at the end of the third quarter, at $81.81 billion. J.P. Morgan Chase & Co. reported $63.57 billion in assets, the third-highest amount among bank-holding companies with more than $250 billion in assets.

Separately, SNL noted that Citigroup carried the highest amount of government-sponsored enterprise securities, at $23.07 billion. The next-highest total was at Wells Fargo & Co., which reported $10.13 billion of GSE security holdings at the end of the third quarter. GSE securities form part of the second level of assets that can be used to calculate the liquidity coverage ratio. These are subject to a 15% haircut.

In October, the Federal Reserve outlined a proposal going beyond international agreements, requiring the largest banks to hold enough safe assets to fund their operations for 30 days if other sources of funding aren't available.

The proposal has a narrower definition of what qualifies as a "high-quality" asset and makes more conservative assumptions about the amount of cash needed at each bank. Under the proposal, the Fed wants banks to hold enough assets to meet 80% of the liquidity coverage ratio by Jan. 1, 2015, and to fully implement the requirement by 2017. That is a faster timeline than outlined in Basel, which wouldn't require banks to meet the full requirement until 2019.

At the time, the Fed estimated banks subject to the new rule would have to add about $200 billion in high-quality assets to comply with the rule, eventually holding a total of about $2 trillion in such assets.

U.S. Bancorp Chief Financial Officer Andrew Cecere said in November at an industry conference that the Minneapolis bank planned to increase its securities portfolio from $76 billion to about $80 billion in the fourth quarter because of the rule.

The liquidity rule was "a little harsher" than the bank had expected, Mr. Cecere said, adding that the increase in securities combined with growth in the bank's deposits would compress its net interest margin by "a few basis points."

Meanwhile, BB&T Corp. Chief Financial Officer Daryl Bible said at a conference in November that the Winston-Salem, N.C., bank also may increase the size of its investment portfolio by $1 billion to $2 billion as a result of the rule.

The rule could result in a "mix change" that "will hurt our yield a little bit," Mr. Bible said.

Bank of America declined to comment. Representatives of J.P. Morgan Chase, Wells Fargo, Citigroup, U.S. Bancorp and BB&T couldn't be reached for comment.

Write to Saabira Chaudhuri at [e-mail] and Andrew R. Johnson at [e-mail]

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