Liquidity of the Commercial Bank

Liquidity means, in a literal sense, the ease of implementation, which implies the transformation of values of a material nature into cash. There are such concepts of liquidity as liquidity of the market, bank, balance and assets.

Liquidity of a commercial bank implies its solvency. The bank is liquid if the total amount of all its cash, other liquid assets and the ability to raise funds from its own sources for a short time are sufficient to pay off all financial and debt obligations.

In addition, the bank must have a liquid reserve, which is necessary to meet the emerging financial needs. Obligatory reserves of commercial banks in many ways are able to secure the position of the bank in the event of unplanned circumstances.

Liquidity management of a commercial bank implies practical measures to monitor the status of all liquidity indicators and the willingness to respond to any kind of deviations from the norms.

In theory, such areas of increasing the bank's liquidity as claims for repayment of loans issued on demand, non-renewal of loans, expansion of passive operations, issue of certificates of deposit, sale of a certain part of the securities portfolio, and loans from the Central Bank are singled out.

To maintain a stable position, the bank must have a certain liquidity reserve. It is necessary to cover unforeseen obligations caused by various external and internal circumstances.

The liquidity of a commercial bank depends on the political situation in the country, the economic realities in the scale of the state, the state of the entire money market, the possibility of refinancing by the Central Bank, the state of the securities market, the improvement of banking legislation, the reliability of clients, the nature of management in the bank, the provision of equity capital, etc. factors.

Central banks regulate the liquidity of a commercial bank by setting limits on the bank's liabilities, the limits of the debt of one borrower, control over the issuance of loans in especially large amounts, the refinancing system and the obligatory reservation of a certain part of the funds raised, interest rate policy, securities transactions, etc. Russia's solvency of commercial banks is also subject to regulation.

To maintain liquidity, the bank needs to predict the situation of possible outflows of demand deposits and "unreliable" term deposits, an increase in demand for loans and other factors of the economic situation.

To manage liquidity, the bank must correctly allocate assets and liabilities. To this end, the accounts tables are drawn up and determine which part of the liabilities should be placed in the liquid articles of active accounts in order to prevent a decrease in the liquidity ratio.

The liquidity of a commercial bank depends on the state of its assets. Depending on the ease of transferring money into cash, the bank's assets are divided into liquid and illiquid.

Liquid funds are in immediate readiness. This is a cash register, first-class bills, precious metals, government securities, funds on a correspondent account with the Central Bank.

Liquid assets that are at the disposal of the bank, and can be converted into money, are loans and payments to the bank for a period not exceeding one month; Conditionally sold securities; Other values (including intangible assets).

Illiquid assets are unreliable debts; Overdue loans; Investment in real estate, buildings and facilities of the bank; Unquoted securities.

To maintain the bank's liquidity, it is not possible to raise funds on a short-term basis with long-term funds.

The liquidity of a commercial bank (its level) is in practice assessed by comparing its liquidity indicators with the norms established by the Central Bank of Russia.