Banking and the Management of Financial Institutions - General Principles of Bank Management - Liquidity management
4 important questions on Banking and the Management of Financial Institutions - General Principles of Bank Management - Liquidity management
What 4 options does a bank have when there is shortfall?
- Reducing loans
- Securities sales
- Borrowing from the Fed (ECB)
What extra costs are there with borrowing money for shortfall?
Securities sale: brokerage and other transaction costs
Federal Service: interest payment based on discount rate
How do you reduce loans for shortfall?
- calling in loans
- other banks purchasing loans at discount
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Why do banks hold excess reserves although loans earn higher returns?
• Borrowing from other banks
• Selling securities
• Borrowing from the central bank
• Calling in or selling off loans
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