Lecture_9 - FINN 3225 Commercial Bank Management Lecture 9 Managing Liquidity UNC Charlotte October 27th 2014(UNC Charlotte FINN 3225 Commercial Bank

Lecture_9 - FINN 3225 Commercial Bank Management Lecture 9...

This preview shows page 1 - 6 out of 20 pages.

FINN 3225 - Commercial Bank Management Lecture 9 - Managing Liquidity UNC Charlotte October 27th, 2014 (UNC Charlotte) FINN 3225 - Commercial Bank Management October 27th, 2014 1 / 20
Image of page 1
Meeting Liquidity Needs Bank liquidity refers to a bank’s capacity to acquire immediately available funds at a reasonable price Can meet liquidity needs by holding high quality liquid assets or acquiring liquidity Firms can acquire liquidity in three ways 1 Selling assets 2 New borrowings 3 New stock issues (UNC Charlotte) FINN 3225 - Commercial Bank Management October 27th, 2014 2 / 20
Image of page 2
Meeting Liquidity Needs (cont’d) Cash assets do not help a bank meet its liquidity needs! If a bank is holding only the minimum amount of cash needed and runs into a liquidity issue that drains its liquid assets, it will end up below the level of cash it is required by regulators to hold Instead, liquid assets are: Cash and due from banks in excess of requirements Federal funds sold and reverse repurchase agreements Short-term Treasury and agency obligations High-quality short-term corporate and municipal securities Some government-guaranteed loans that can be readily sold (UNC Charlotte) FINN 3225 - Commercial Bank Management October 27th, 2014 3 / 20
Image of page 3
Meeting Liquidity Needs (cont’d) If a bank starts to meet liquidity problems, issuing debt to fund liquidity needs will become more difficult People will not want to lend to the bank for fear that it will not be able to pay the money back Any of the following can cause a bank difficulty in borrowing funds for liquidity: Decline in earnings Increase in the amount of nonperforming assets Change in deposit concentrations Rating agency downgrading the bank’s debt Expanded business opportunities Acquisitions New tax initiatives (UNC Charlotte) FINN 3225 - Commercial Bank Management October 27th, 2014 4 / 20
Image of page 4
Reserve Balances at the Fed Federal Reserve has three main tools to enact monetary policy 1 Open market operations 2 The discount window 3 Changes in reserve requirements Setting the reserve requirement tells a bank what percentage of its demand deposit accounts it is able to lend If a bank has $ 10M in demand deposit accounts and the
Image of page 5
Image of page 6

You've reached the end of your free preview.

Want to read all 20 pages?

  • Spring '14
  • DonaldA.Plath
  • Monetary Policy, Federal Reserve System, excess reserves

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture