Wednesday, May 6, 2009

bank liquidity (2)

the deposit structure of the bank needs to be kept in mind in the provision of bank liquidity, because some deposits are likely to be more volatile than others. Interbank deposits and public deposits, for example, tend to be more volatile than other categories of demand deposits. Hence, banks with heavy deposits in these categories need to be particularly well protected in their holdings of liquid assets, so that they can meet any unexpected heavy deposits with-drawal. Likewise, those banks that cater to large companies, which have a substantial nationwide business, may be subject to large cash drains.

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