The liquidity levels of most large European banks declined in the second quarter, at a time when regulators are stepping up their scrutiny of lenders' buffers.

The liquidity coverage ratios (LCRs) of 36 big banks in Europe ranged from 123% to 373% in the period, according to data from S&P Global Market Intelligence. Of these, 24 recorded a quarter-over-quarter deterioration in LCR, while 12 saw an improvement. The ratio measures the ability to withstand cash outflows for 30 calendar days, and systemically important banks are required to hold LCRs of more than 100%.

The collapse of Silicon Valley Bank in the US and the subsequent crisis at Credit Suisse Group AG in March highlighted the risk of rapid liquidity depletion, prompting global regulators to increase their scrutiny of banks' liquidity buffers to better monitor potential risks. In Europe, banks will be required to submit liquidity data on a weekly basis from September, compared to a monthly basis at present.

Italy's BPER Banca SpA recorded the steepest quarterly LCR decline of nearly 50 percentage points to 157.10%. Domestic peers UniCredit SpA, Intesa Sanpaolo SpA, Banco BPM SpA and Banca Monte dei Paschi di Siena SpA also suffered declines of varying sizes, with UniCredit's ratio declining by only 0.27 percentage point. Their LCRs ranged from 160% to 180.5%.

Türkiye Cumhuriyeti Ziraat Bankasi AS logged the second-sharpest liquidity deterioration of 44.86 percentage points, followed by Denmark-based Nykredit A/S with a near-40-percentage-point drop. However, Nykredit had the highest LCR among the banks in the sample of 373%.

Denmark's Danske Bank A/S and Austria-based Raiffeisen Bank International AG also suffered significant declines of more than 20 percentage points.

Swedbank AS registered the highest LCR improvement of 61.25 percentage points, followed by Swedish peer Svenska Handelsbanken AB (publ) with 37.10 percentage points and Spain's CaixaBank SA with 17.24 percentage points.

The string of bank failures in the US in March has thrown into question banks' ability to withstand significant deposit flights and rendered the rates currently used in calculating the LCR "obsolete," Klaas Knot, chair of the G20's Financial Stability Board said in June.

But compared to some regional US banks, European banks' deposits are stable, S&P Global Ratings said in a recent report. Deposits, which currently account for about 60% of European banks' total funding, are largely provided by households and are to a high degree insured, the rating agency noted.

"Banks' ample liquidity, largely in the form of cash, positions them well to deal with potential deposit outflows should they materialize," Ratings said.

While the situation has normalized since the March banking turmoil, the financial sector is "still in a very delicate context," and banks and regulators must "continue to pay very close attention to risks," ECB Supervisory Board Chair Andrea Enria said in a recent interview with Milano Finanza.

The European Banking Authority said it will put a stronger focus on national regulators' assessment and testing of banks' liquidity in the event of a resolution beginning in 2024 to ensure that a potential bank run similar to recent crisis events is taken into account.

– Analyze individual bank liquidity composition using the Bank Regulatory Capital template on S&P Global Capital IQ Pro.  – Learn how to find LCR metrics on Screener.

UBS Group AG, which had postponed the publication of its second-quarter results owing to its integration of Credit Suisse, was excluded from the sample.