Goldman: Q2 G-SIB Disclosures Suggest Muted Year-End USD Funding Pressure

Goldman Sachs note that "as a result of balance sheet growth, bank G-SIB scores increased more than twice as much in the first half of the year compared to the prior years (+26pts vs 11pts historically). Some banks are likely to allow their G-SIB buffer to increase to avoid incurring the costs associated with shrinking - part of the expansion is after all the mirror image of an increase in the Fed's balance sheet, which won't reverse in the near term. JPM, for instance, has already announced it would target a higher bucket. However, other banks' scores are close enough to levels observed in 3Q19 to suggest there may be some paring down of balance sheet going into year-end, though the system-wide decline is likely to smaller than seen last year. Additionally, this time around, there are a variety of Fed backstop facilities and an abundance of liquidity; therefore, we do not expect significant funding pressures over the year-end. To be sure, there may be some near-term funding spread widening as we go into the final quarter, but the moves are likely to be fairly muted. The spread between Dec-20 FRA-OIS and spot looks fair to us, and we don't anticipate stresses developing in other markets (repo, FX swaps) either."