Goldman Sachs: GSIB Scores Strengthen Conviction On More Muted Year-End

Goldman Sachs note that "the Fed's Q3 release showed an increase in large US banks' GSIB scores, due in large part to continued bank balance sheet growth and higher equity prices. On the latter, our banks analysts estimate that equity market performance in Q4 should put some modest additional pressure on their scores. Over the past few years, banks have generally pulled back on certain G-SIB intensive OTC products, repo, cross-currency lending and trading assets in the fourth quarter in an effort to optimize or lower their scores. Such actions have resulted in intermediation bottlenecks, contributing to year-end widening pressure on dollar-funding spreads. This time, our banks analysts expect at least one G-SIB (JPM) and possibly two will allow their capital surcharge bucket to increase versus last year given the associated costs with migrating to a lower bucket. With the subset of banks looking to pare down their balance sheets smaller than in past years, we expect the year-end cyclical in funding spreads to remain muted this year relative to recent history."