EN Ireland Professional Investor
Macroeconomic & Geopolitical

Awash in Liquidity: Stress-Testing Corporate Balance Sheets

2 December 2020 - 5 min read

The next stage of the recovery may put increased stress on some sectors and many firms...

...but an analysis of corporate balance sheets in Europe and the United States reveals that a systemic liquidity crunch triggering a financial crisis, bankruptcy waves and recessions is very unlikely. Euro area balance sheets are as liquid as they have been since the euro’s inception. A combination of increasing cash buffers and lengthening of funding maturities has taken place since 2012, so that, thanks also to the unprecedented policy support, euro area firms were able to weather the March liquidity crunch and today possess a much bigger liquidity buffer than the one they had at the onset of the 2008 crisis. U.S. corporates increased their liquidity buffers much less, by comparison, but they still appear in a very strong position to be able to manage a severe liquidity shock, especially given their ability to liquidate their financial assets easily if required.

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