Liquidity Management

Bank Liquidity Management

April 28

2010

Banks face two central issues regarding liquidity. Banks are responsible for managing liquidity creation and liquidity risk. Liquidity creation helps depositors and companies stay liquid, for companies especially when other forms of financing become difficult. Managing liquidity risk is to ensure the banks own liquidity so that the bank can continue to serve its function. This balancing act between a bank’s own liquidity and its role as a liquidity creator, especially in times of financial distress or crisis, is the focus of this paper. There has been a great deal of scrutiny on this issue due to the financial crisis that began in 2007 and is still affecting the economy today.

Brendan van der Vossen University at Albany, State University of New York Dr. Raymond Van Ness University at Albany, State University of New York

Bank Liquidity Management - Brendan van der Vossen 2010

Table of Contents

I. II. III. IV. V. VI. VII. Introduction...................................................................................................................................... 2 Literature Review ........................................................................................................................... 4 Statement of Problem .................................................................................................................. 14 Possible solutions......................................................................................................................... 15 Conclusion ..................................................................................................................................... 18 Suggestions for Future Research .............................................................................................. 19 References .................................................................................................................................... 20

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