CHAPTER TEN Liquidity And Reserve Management: Strategies And Policies.
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The purpose of this chapter is to explore the reason’s why financial institutions often face heavy demands for immediately spendable funds (liquidity) and learn about the methods they can use to prepare for meeting their cash needs.
The Availability of Cash in the Amount and at the Time Needed at a Reasonable Cost
L = Supplies of Liquid Funds
- Demands for Liquidity
This Strategy Calls for Storing Liquidity in the Form of Liquid Assets and Selling Them When Liquidity is Needed
Treasury Bills Problems
Fed Funds Sold to Other Banks
Purchasing Securities for Resale (Repos)
Deposits with Correspondent Banks
Municipal Bonds and Notes
Federal Agency Securities
Eurocurrency LoansOptions for Storing Liquidity
This Strategy Calls for the Bank to Purchase or Borrow from the Money Market To Cover All of Its Liquidity Needs
The Combined Use of Liquid Asset Holdings (Asset Management) and Borrowed Liquidity (Liability Management) to Meet Liquidity Needs
Management Should Strive to Meet All Good Loans that Walk in the Door in Order to Build Lasting Customer Relationships
Assets That a Central Bank Requires Depository Institutions to Hold as a Reserve Behind Their Deposits or Other Liabilities
A Contractual Account Between Bank and Customer that Permits the Bank to Move Funds Out of a Customer’s Checking Account Overnight in Order to Generate Higher Returns for the Customer and Lower Reserve Requirements for the Bank
The Period of Time Over Which a bank Calculates its Legal Reserve Requirement
The Period of Time Over Which a Bank Must Hold the Required Amount of Legal Reserves that the Law Demands