1、Chapter ElevenLiquidity and Reserves Management: Strategies and PoliciesCopyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.Key TopicsSources of Demand for and Supply of Liquidity Why Financial Firms Have Liquidity Problems Liquidity Management Strategies E

2、stimating Liquidity Needs The Impact of Market Discipline Legal Reserves and Money Management11-2Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.IntroductionOne of the most important tasks the management of any financial institution faces is ensuring ad

3、equate liquidity at all timesA financial firm is considered to be “l(fā)iquid” if it has ready access to immediately spendable funds at reasonable cost at precisely the time those funds are neededThis suggests that a liquid financial firm either hasThe right amount of immediately spendable funds on hand

4、 when they are requiredThey can raise liquid funds in timely fashion by borrowing or selling assetsLack of adequate liquidity can be one of the first signs that a financial institution is in troubleA financial firm can be closed if it cannot raise sufficient liquidity even though, technically, it ma

5、y still be solvent11-3Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.The Demand for and Supply of LiquidityDemands for LiquidityCustomer deposit withdrawalsCredit requests from quality loan customersRepayment of nondeposit borrowingsOperating expenses

6、and taxesPayment of stockholder dividendsSupplies of Liquid FundsIncoming customer depositsRevenues from the sale of nondeposit servicesCustomer loan repaymentsSales of bank assets Borrowings from the money market11-4Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction

7、 or display.The Demand for and Supply of Liquidity (continued)These various sources of liquidity demand and supply come together to determine each financial firms net liquidity position at any moment in timeThat net liquidity position (L) at time t isLiquidity Deficit is Lt 011-5Copyright 2013 The M

8、cGraw-Hill Companies, Inc. Permission required for reproduction or display.The Demand for and Supply of Liquidity (continued) The essence of liquidity management problems for financial institutionsRarely are demands for liquidity equal to the supply of liquidity at any particular moment in timeThe f

9、inancial firm must continually deal with either a liquidity deficit or a liquidity surplus. There is a trade-off between liquidity and profitabilityThe more resources are tied up in readiness to meet demands for liquidity, the lower is that financial firms expected profitability (other factors held

10、constant)11-6Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.Why Financial Firms Often Face Significant Liquidity ProblemsImbalances between maturity dates of their assets and liabilitiesHigh proportion of liabilities (especially demand deposits and mon

11、ey market borrowings) are subject to immediate repaymentSensitivity to changes in interest ratesMay affect customer demand for depositsMay affect customer demand for loansCentral role in the payment process, reputation and public confidence in the system11-7Copyright 2013 The McGraw-Hill Companies,

12、Inc. Permission required for reproduction or display.Strategies for Liquidity ManagersThink about what is a liquid asset?Liquid assets have a ready market, stable price and are reversibleIdentify strategies for liquidity managementAsset Liquidity Management or Asset Conversion StrategyThis strategy

13、calls for storing liquidity in the form of liquid assets (T-bills, fed funds loans, CDs, etc.) and selling them when liquidity is neededBorrowed Liquidity or Liability Management StrategyThis strategy calls for the bank to purchase or borrow from the money market to cover all of its liquidity needsB

14、alanced Liquidity StrategyThe combined use of liquid asset holdings (Asset Management) and borrowed liquidity (Liability Management) to meet liquidity needs11-8Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.Strategies for Liquidity Managers (continued)

15、Guidelines for Liquidity ManagersKeep track of all fund-using and fund-raising departmentsKnow in advance withdrawals by the biggest credit or deposit customersPriorities and objectives for liquidity management should be clearLiquidity needs must be evaluated on a continuing basis11-9Copyright 2013

16、The McGraw-Hill Companies, Inc. Permission required for reproduction or display.Estimating Liquidity NeedsSources and Uses of Funds ApproachStructure of Funds ApproachLiquidity Indicator ApproachThe Ultimate Standard for Assessing Liquidity Needs: Signals from the Marketplace11-10Copyright 2013 The

17、McGraw-Hill Companies, Inc. Permission required for reproduction or display.Estimating Liquidity Needs (continued)Sources and Uses of Funds ApproachLoans and deposits must be forecast for a given liquidity planning periodThe estimated change in loans and deposits must be calculated for the same plan

18、ning periodThe liquidity manager must estimate the banks net liquid funds by comparing the estimated change in loans to the estimated change in deposits11-11Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.Estimating Liquidity Needs (continued)Sources an

19、d Uses of Funds Approach11-12Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.Estimating Liquidity Needs (continued)Sources and Uses of Funds Approach11-13Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.Esti

20、mating Liquidity Needs (continued)Sources and Uses of Funds Approach11-14Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.Sources and Uses of Funds Approach考慮趨勢性季節(jié)性周期性因素Estimating Liquidity Needs (continued)Structure of Funds ApproachA Banks Deposits and

21、 Other Sources of Funds Divided Into Categories. For Example:Hot Money Liabilities (volatile liabilities)Vulnerable FundsStable Funds (core deposits or core liabilities) Liquidity Manager Set Aside Liquid Funds According to Some Operating Rule11-16Copyright 2013 The McGraw-Hill Companies, Inc. Permi

22、ssion required for reproduction or display.Estimating Liquidity Needs (continued)Structure of Funds ApproachFor example, the manager may decide to set upA 95 percent liquid reserve behind all hot money funds (less any required legal reserves held behind hot money deposits)30 percent in liquid reserv

23、es for vulnerable deposit and nondeposit liabilities15 percent or less in liquid reserves for stable (core) funds sources11-17Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display. Probability ofAmount Held Withdrawal in Expected (in millions) Next 3 Months W

24、ithdrawalsShort-term (unstable):Demand deposits$ 2.90 $ 1.8 Other transactions accounts$10.60 $ 6.0Medium-term:Small time and savings deposits $50.30 $15.0Long-term (stable):Large time deposits$10.20 $ 2.0 Expected deposit withdrawals $24.8 Estimating Liquidity Needs (continued)Structure of Funds Ap

25、proachCombining both loan and deposit liquidity requirements, this institutions total liquidity requirement would be11-19Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.Structure-of-funds approachType of deposit or loanDeposits and loans in $ millionLes

26、s legal reserves heldx rate of liquidity reserveAmount of liquidity reservesHot money (volatile)$25$0.75($25 * .03).95$23.0Vulnerable$24$0.72($24 * .03).30$7.0Stable (core liabilities)$100$3.0($100 * .03).15$14.6Possible loan requests$191.0$19 Total$159$63.6Estimating Liquidity Needs (continued)Stru

27、cture of Funds ApproachMany financial firms like to calculate their expected liquidity requirement, based on the probabilities they assign to different possible outcomes 11-21Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.Estimating Liquidity Needs (co

28、ntinued)Liquidity Indicator ApproachCash position indicatorLiquid securities indicatorNet federal funds and repurchase agreements positionCapacity ratioPledged securities ratioHot money ratioDeposit brokerage indexCore deposit ratioDeposit composition ratio Loan commitments ratio11-22Copyright 2013

29、The McGraw-Hill Companies, Inc. Permission required for reproduction or display.Liquidity Indicator ApproachCash position = (cash and deposits due from deposit. Institutions)/(total assets)Net fed funds=(fed funds sold - fed funds purchases)/(total assets)Capacity = (net loans and leases)/(total ass

30、ets)Deposit composition = (demand deposits) / (time deposits)Loan commitment = (unused loan commitments)/(total assets)Liquidity Indicator ApproachIndicator2005 ValueCash position indicator4.4%Net fed funds & repos -2.9%Capacity ratio58.0%Deposit Composition Ratio36.6%Loan Commitment Ratio66.9%Examp

31、les:Estimating Liquidity Needs (continued)The Ultimate Standard for Assessing Liquidity Needs: Signals from the MarketplaceLiquidity managers should closely monitor the following market signals:Public confidenceStock price behavior Risk premiums on CDs and other borrowings Loss sales of assets Meeti

32、ng commitments to credit customersBorrowings from the central bank11-25Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.Legal Reserves and Money Position Management Legal ReservesThose assets that law and central bank regulation say must be held during a

33、 particular time periodThe current system of accounting for legal reserves is called lagged reserve accounting (LRA)The daily average amount of deposits and other reservable liabilities are computed using information gathered over a two-week period stretching from a Tuesday through a Monday two week

34、s laterThis interval of time is known as the reserve computation periodThe daily average amount of vault cash each depository institution holds is also figured over the same two-week computation period11-26Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display

35、.法定準備金的要求凈交易存款準備金要求$1 - $7.8 million0%$7.8 - $48.3 million3% $48.3 million10%準備金的要求來自金融機構(gòu)存款數(shù)量及構(gòu)成，其所處具體時期交易存款：支票帳戶、可轉(zhuǎn)讓支付命令及其他可進行支付的存款。準備金的要求Assume bank has $540 million in net transaction depositsAssume bank has $10 m in average vault cashAvg. legal reserve = ($7.8 m x 0% ) + ($48.3 - $7.8 m) x 3% +

36、($540 m - $48.3 m) x 10% = $0 + $1.22 m + $49.17 m = $50.39 mAvg. reserve at Fed = $50.39 m - $10 m = $40.39 mEXHIBIT 111 Federal Reserve Rules for Calculating a Weekly Reporting Depository Institutions Required Legal Reserves11-29Copyright 2013 The McGraw-Hill Companies, Inc. Permission required fo

37、r reproduction or display.Legal Reserves and Money Position Management (continued)Legal ReservesOnly two kinds of assets can be used for this purposeCash in the vaultDeposits held in a reserve account with the regional FedThe reserve requirement in 2010 was 3 percent of the end-of-the-day daily aver

38、age amount held over a two-week period, from $10.7 million up to $58.8 millionThe first $10.7 million have zero legal reservesThe $58.8 million figure is known as the reserve tranche and changes every year based on deposit growthTransaction deposits over $58.8 million held by the same depository ins

39、titution carried a 10 percent legal reserve requirementThis annual legal reserve adjustment is designed to offset inflation11-30Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.Legal Reserves and Money Position Management (continued)Calculating Required

40、Reserves The largest depository institutions must hold the largest percentage of legal reservesEach reservable liability item is multiplied by the stipulated reserve requirement percentage to derive each depositorys total legal reserve requirement11-31Copyright 2013 The McGraw-Hill Companies, Inc. P

41、ermission required for reproduction or display.Legal Reserves and Money Position Management (continued)Calculating Required Reserves The largest depository institutions must hold the largest percentage of legal reservesEach reservable liability item is multiplied by the stipulated reserve requiremen

42、t percentage to derive each depositorys total legal reserve requirement11-32Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.Legal Reserves and Money Position Management (continued)Clearing Balances In addition to holding a legal reserve account at the c

43、entral bank, many depository institutions also hold a clearing balance with the Fed to cover any checks or other debit items drawn against themFor example, suppose a bank had a clearing balance averaging $1 million during a particular two-week maintenance period and the Federal funds interest rate o

44、ver this same period averaged 5.50 percentThen it would earn a Federal Reserve credit ofAssuming a 360-day year for ease of computation, this bank could apply up to $2,138.89 to offset any fees charged to the bank for its use of Federal Reserve services11-33Copyright 2013 The McGraw-Hill Companies,

45、Inc. Permission required for reproduction or display.Legal Reserves and Money Position Management (continued)Factors Influencing the Money Position11-34Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.Legal Reserves and Money Position Management (continu

46、ed)Sweep Accounts Volume of legal reserves held at the Fed has declined in recent years largely due to sweep accountsA contractual account between a bank and a customer that permits the bank to move funds out of a customers checking account overnight in order to generate higher returns for the custo

47、mer and lower reserve requirements for the bankRetail SweepBusiness SweepThe sweeps market is likely to change in form and importance due to the recent passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 200911-35Copyright 2013 The McGraw-Hill Companies, Inc. Permission requi

48、red for reproduction or display.Legal Reserves and Money Position Management (continued)Other Factors to Influence Legal ReservesUse of Fed Funds MarketThe cheapest sourceBut very volatileManagers rely on the Fed funds target rate (the most volatile on the settlement date)Other OptionsSell liquid se

49、curitiesDraw upon excess correspondent balancesEnter into repurchase agreements for temporary borrowingsSell new time depositsBorrow in the Eurocurrency market11-36Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.EXHIBIT 112 Movements in the Effective Fe

50、deral Funds Rate, Its Target (the Intended Federal Funds) Rate, and the Discount (Primary Credit) Rate for Depository Institutions Seeking Credit from the Federal Reserve Banks11-37Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.Factors in Choosing amon

51、g the Different Sources of ReservesIn choosing which source of reserves to draw upon to cover a legal reserve deficit, managers must carefully consider several aspects of their institutions need for liquid funds:Immediacy of needDuration of needAccess to the market for liquid fundsRelative costs and

52、 risks of alternative sources of fundsThe interest rate outlookOutlook for central bank monetary policyRules and regulations applicable to a liquidity source11-38Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.Central Bank Reserve Requirements around the GlobeNot all central banks impose legal reserve r