Friday, May 1, 2009

Commercial banks and the Money Market (2)

Nearly all commercial banks, however, no matter what their size,interact with the money market either directly or indirectly in their asset management. Since we have already dealt with the principles of liability management,our main emphasis will be on asset management of banks in relationship to the money market. In this context,banks may approach the money market when their reserve positions require some adjustment. A commercial bank with temporary excess reserves may wish to find temporary employment for them in the money market, whereas a bank with a temporary deficiency of reserves may wish to sell some of its Treasury bills in the money market,or perhaps buy federal funds. Furthermore,because the center of the money market is in New York City, it is the large commercial banks,either located in New York City or having correspondent relationships with New York City banks,that are likely to place initial pressure or ease on the money market through their reserve adjusting operations. The 8 New York City money market banks and the 38 money market banks outside New York City are the banks that resort most to the money market.

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