Wednesday, May 6, 2009

Bank Deposits

liquidity of commercial banks is related not only to the amount of primary and secondary reserve that they hold but also to their demand and time deposits. In fact, changes in a bank 's liquidity ratio are often directly connected with with changes in its deposits. If there is net withdrawal of deposits from a bank, that bank will surely lose cash to other banks. The cash, of course, does not disappear from the banking system, but for an individual bank a loss of deposits means a loss of cash,just as an increase in deposits provides added loanable funds for the bank receiving the deposits.

No comments: