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Feb 25, 2023 · For example, a bank's liquidity is determined by its ability to meet all of its anticipated expenses, such as funding new loans or fulfilling customer account withdrawals, using...
- Claire Boyte-White
We'll cover in detail why high quality liquid assets within the banking system are critical, not only to sustain bank lending practices and meet withdrawal demands, but to maintain economic growth. Want to know more about liquidity management?
Jul 12, 2019 · In particular, beginning in 2015, large banks in the United States have needed to comply with the liquidity coverage ratio (LCR) by holding sufficient "high-quality liquid assets" (HQLA), a requirement that has induced significant changes to banks' balance sheet management.
If banks allocate their balance sheet by equalizing the marginal risk-adjusted expected return across asset classes, they hold more liquid assets when they have less advantageous lending opportunities. We show that, indeed, holdings of liquid assets are negatively related to lending opportunities.
Banks hold liquid assets as a buffer against liquidity pressures. Liquid assets comprise those types of assets that are generally expected to hold their value over time, that have low transac-tions costs, and that can therefore be quickly transformed into cash, when needed, at low cost. These assets must be “unen-
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We show that the portfolio motive helps explain the large holdings of liquid assets of banks. With this motive, post -GFC increases capital requirements that make holding loans less profitable relative to holding liquid assets help explain why banks hold so much liquid assets after the GFC.
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Aug 14, 2019 · A bank is liquid if it can repay borrowers when due, meet deposit withdrawals, and satisfy draws on lines of credit that it has extended without paying inordinately in funding markets or selling assets at fire-sale prices. Moreover, because banks provide funding to each other, liquidity problems at one bank can quickly spillover to other banks.
