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Bank Asset and Liability Management

Bank Asset and Liability Management - Asset Management Bank...

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Bank Asset and Liability Management From Last Time The proportion of deposits banks will want to hold as excess reserves will be greater the average level or variability of deposit outflows because banks will require a greater cushion against outflows. Banks will want to hold less excess reserves when market interest rates rise because the opportunity cost of holding excess reserves rises. Deposits are liabilities because they are promises by the bank to pay depositors on demand. If the bank receives just $60 million for selling $90 million in loans, the $30 million difference is written off as a loss. The bank capital falls by $30 million.
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Unformatted text preview: Asset Management Bank asset management consists of 1. finding buyers who will pay high interest rates and are unlikely to default on their loans 2. purchasing securities with high returns and low risk 3. holding liquid assets with lower returns to satisfy reserve requirements without bearing huge costs Liability Management When they see an attractive loan possibility, banks actively seek out sources of funds by issuing negotiable CD's (can be sold) or by borrowing from other banks or corporations....
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