Wednesday, May 6, 2009

bank liquidity (1)

for certain purposes, it may also be desirable to measure the liquidity of a given bank, or a group of banks, and the changes in its liquidity over time.In this event both primary and secondary reserve should be combined and the ratio of these liquid assets to demand deposits less collection items, or to total deposits, can then be computed. before we see what has happened to bank liquidity in recent years, however, it appears appropriate to examine some of the factors that effect the liquidity needs of a particular bank. One important factor is the kind of deposit drain to which a given bank may be subject. As already indicated, demand deposits have a much higher turnover than time deposits; and the ratio of demand deposits to total deposits varies widely from one bank to another. A bank with more demand deposits than another bank will therefore have a greater liquidity requirement to meet, whether this need is recognized by the monetary authorities in the from of higher legal reserve requirements or not.

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