• Bank Management Concepts (from Mishkin) o Liquidity Management – bank must manage assets and liabilities to have enough liquidity – to meet deposit outflows. Hold adequate excess reserves, ‘secondary reserves’ (holdings of government securities), etc. Some changes due to Fed paying interest on reserves and allowing ‘automatic’ use of the discount window. o Asset Management- management of assets (loans, securities, reserves, etc) to achieve acceptable return with low risk. Diversification of assets-geographically and by industry and sector so problem in one area doesn’t damage entire portfolio. This was ‘traditional’ banking – passively waiting for depositors, then investing these funds, then on to the golf course o Liability Management – beginning in 1960’s, bank focus shifted to acquiring liabilities (sources of funds) when good lending/asset opportunities arose. That is, banks were no longer passive receiver of funds, rather actively sought out funds through issuance of
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