CHAPTER 12
LIQUIDITY AND RESERVE MANAGEMENT STRATEGIES AND POLICIES Goal of This Chapter: To learn how to estimate a bank's need for liquidity (immediately spendable funds). calculate a bank's required rerves, and explore the sources of liquid funds banks can draw upon to meet their liquidity needs.
Key Terms Prented in This Chapter
Liquidity Structure of funds method
Net liquidity position Liquidity indicators
Ast liquidity management Money position manager
感悟生活作文
Liquid ast Legal rerves
Opportunity cost Clearing balances
Liability management Sweep accounts
Balanced liquidity management Lagged rerve accounting (LRA)
Sources and us of funds method Rerve computation period
Liquidity gap Rerve maintenance period
Chapter Outline
I. Introduction: Meaning of Liquidity in Banking
II. The Demand for and Supply of Liquidity
A. Sources of Bank Liquidity Demands
B. Supply Sources of Bank Liquidity
C. Net Liquidity Position and Liquidity Surplus and Deficits
Ill. Why Banks Face Significant Liquidity Demands
高中生学习A. Maturity Imbalances
B. Sensitivity to Changing Interest Rates
C. Liquidity and Public Confidence
IV. Strategies for Liquidity Managers
A. Ast Liquidity Management (Ast Conversion) Strategies
1. The Concept of Ast Conversion
2. Nature of Liquid Asts
3. Requirements of a Liquid Bank
4. Opportunity Cost
B. Borrowed Liquidity (Liability) Management Strategies
1. Advantages of Borrowed Liquidity
2. Risks of Borrowed Liquidity
C. Balanced (Ast and Liability) Liquidity Management Strategies
D. Guidelines for Bank Liquidity Managers
1. Keeping Track of All Funds-Using and Funds-Raising Departments Within
the Bank
2. Knowing in Advance the Plans of the Bank's Largest Credit and Deposit
Customers
3. Setting Clear Priorities and Objectives for Liquidity Management
4. Analyzing Liquidity Needs on a Continuing Basis
V. Estimating a Bank's Liquidity Needs
揣着明白装糊涂A. The Sources-and-Us-of-Funds Approach
B. The Structure-of-Funds Approach
C. Liquidity Indicator Approach
D. The Ultimate Standard for Evaluating and Asssing Liquidity
Management -- Signals from the Marketplace
1. Public Confidence
2. Stock Price Behavior
3. Risk Premiums on CDs and Other Borrowings
4. Loss Sales of Asts
5. Meeting Commitments to Credit Customers
6. Borrowings from the Federal Rerve Banks
VI. Legal Rerves and Money-Position Management
A. The Concept of Legal Rerves and Rervable Liabilities
B. The Calculation of Required Legal Rerves, Rerve Deficits, and Rerve
Surplus
C. The Concept of the Clearing Balance
D. Factors Influencing a Bank's Money Position
E. The Concept of Sweeps
F. Regulations on Calculating Legal Rerve Requirements
G. The Lagged Rerve Accounting (LRA) System
1. Rerve Computation Periods
2. Rerve Maintenance Periods展览用英语怎么说
H. The Goals of the Money-Position Manager
I. Options Available to the Money-Position Manager
1. Ast or Stored Liquidity Sources
2. Liability or Purchad Liquidity Sources
VII. Factors to Consider in Choosing Among the Different Sources of Rerves
A. Immediacy of the Bank's Need
B. Duration of the Bank's Need
C. The Bank's Access to the Market for Liquid Funds
D. Relative Costs and Risks of Alternative Sources of Funds
E. Interest-Rate Outlook and the Shape of the Yield Curve
年底个人总结F. Outlook for Monetary Policy and Government Borrowing
G. Hedging Capability
H. Regulations Applicable to Liquidity Sources
VIII. Summary of the Chapter
Concept Checks
12-1. What are the principal sources of liquidity demand for a bank?
The most pressing demands for liquidity ari principally from customers withdrawing money from their deposits and credit requests.
12-2. What are the principal sources from which a bank's supply of liquidity comes? Supplies of bank funds stem principally from incoming deposits, sales of bank asts, particularly money market curities, and repayments of outstanding loans.
12-3. A bank projects that the following cash inflows and outflows (in millions of dollars) will occur during the coming week:
Cash Inflows Cash Outflows
Customer Loan Repayments $108 Deposit Withdrawals $313 Sales of Bank Asts 18 Operating Expens 51 New Deposits 670 New Loan Requests 294 Money-Market Borrowings 43 Repayment
of Previous Borrowings 23 Nondeposit Service Fees 27 Dividend to Stockholders 140 Total Cash Inflows $866 Total Cash Outflows $821
泰和县Net Liquidity
Position Total Cash Total Cash
Projected for = Inflows - Outflows
the Coming
Week
= $866 million - $821 million
= + $45 million
12-4. When is a bank adequately liquid?
A bank is adequately liquid if it has adequate cash available precily when cash is needed at a reasonable cost. Management can monitor the bank's cash position over time and monitor as well w
hat is happening to its cost of funds. One indicator of the adequacy of a bank's liquidity position is its cost - a rising interest cost may reflect greater perceived risk for the borrowing bank as viewed by capital-market investors.
12-5. Why do banks face significant liquidity management problems?
Banks are prone to liquidity management problems due to:
(1) their relatively high proportion of short-term deposits and relatively long-term financial
asts:
(2) the nsitivity of their asts and liabilities to interest-rate movements; and
(3) their central role in the payments process.
12-6. What are the principal differences among ast management, liability management, and balanced liquidity management?
Ast management is a strategy for meeting liquidity needs, ud mainly by smaller banks, in which l
iquid funds are stored in readily marketable asts that can be quickly converted into cash as needed. Liability management involves borrowing enough immediately spendable funds to cover demands for liquidity made against a bank. Balanced liquidity management calls for using both ast management and liability management to cover a bank's liquidity needs.
12-7. What guidelines should management keep in mind when it manages its bank's liquidity position?
It is important for a liquidity manager to: (a) keep track of the activities of other departments within the bank; (b) know in advance the planned activities of the bank's largest credit and deposit customers; (c) t priorities and objectives in liquidity management; and (d) react quickly to liquidity deficits and liquidity surplus.
Liquidity managers must know what other departments within the bank are doing becau their activities affect the bank's liquidity position and liquidity management decisions. The liquidity manager can make better decisions to profitably invest surplus liquid funds or avoid costly,
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last-minute borrowings if he or she knows what the bank's principal depositors and creditors will do in advance. By tting priorities and objectives the liquidity manager has a better chance to make so
und decisions plus an ability to act quickly to profitably invest surplus in order to gain maximum income or avoid costly deficits and prolonged borrowings.
12-8. How does the Sources and Us of Funds approach help a manager estimate a bank's need for liquidity?
The sources-and-us-of-funds approach estimates future deposit inflows and estimated outflows of funds associated with expected loan demand and calculates the net difference between the items in each planning period.
12-9. A bank faces the following estimated deposit and loan figures for each of the next six months: (all figures in millions)
Estimated Total Deposits Estimated Total Loans
$112 $87
132 95
121 102
147 113
151 101
139 124
Change in Deposits Change in Loans Estimated Liquidity Deficit or Surplus
$ --- $ --- $ ---
+20 +8 +12
-11 +7 -18
+26 +11 +15
+4 -12 +16
-12 +23 -35
Clearly, the bank has projected liquidity surplus (which should be profitably invested) for three of t
he next four months, but a deficit is estimated for the cond and last month which will have to be covered through borrowings and possibly through the sale of liquid asts.
12-10. What steps are needed to carry out the structure of funds approach to bank liquidity management?
In the first step, the bank's deposits and other funds sources are divided into categories bad on their estimated probability of being withdrawn and, therefore, lost to the bank. Second, the liquidity manager must t aside liquid funds according to some desired operating rules for "hot money" liabilities, vulnerable funds, and stable funds.
12-11. Suppo a bank’s liquidity division holds $19 million in hot money deposits and other IOUs against which it will hold an 80 percent liquidity rerve, $54 million in vulnerable funds against which it plans to hold a 25 percent rerve, and $112 million in stable or core funds against which it will hold a 5 percent liquidity rerve. The bank expects its loans to grow 8 percent annually; its loans currently stand at $117 million, but have recently reached $132 million. If rerve requirements on liabilities currently stand at 3 percent, what is the bank's total liquidity requirement?
Total Liquidity
Requirement = 0.80 ($19 million - 0.03 x $19 million)
+ 0.25 ($54 million - 0.03 x $54 million)
+ 0.05 ($112 million - 0.03 x $112 million)
+ ($132 million +O.08 x $132 million - $117 million)
意义学习= $58.83 million
12-12. What is the liquidity indicator approach to bank liquidity management?
