ipl-logo

Liquidity In Banking

769 Words4 Pages

Risks arise due to uncertainties in the social, economic and political environment due to non- availability of information. This paper deals with the risk management involved in the financial institutions. These risks result from variations and fluctuations in asset or liabilities. It may also result from assets or payments and on liabilities or in inflows or outflows of cash. There is a need for risk management in banking sector to overcome the risk and manage the banking function well. Dr.Krishan A Goel(2010) said that the basic objective of risk management is to its stakeholders; value by maximizing the profit and optimizing the capital funds for ensuring long term solvency of the banking organization.
The process of Risk management includes …show more content…

The risk involves the inability of the bank to meet expected and unexpected cash and collateral obligations in reasonable cost without incurring unacceptable losses. There are two interrelated dimensions to bank liquidity – Liability (cash) liquidity which is basically the ability to obtain funding on the market and Asset (market) liquidity which is associated with the possibility of selling the assets. The funding of long term assets by short term liabilities arises the liquidity risk of the banks. Liquidity is the means of efficiently accommodating the deposits as well as reduction in liabilities. Liquidity risk is related to interest rate and market risks, its profitability and solvency. Liquid risks are of two types – funding risk and asset …show more content…

These risks are managed by the banks by regularly finding the gaps between the assets and liabilities and make sure that there is minimal gap. Failure to balance such gaps lead to liquidity risks.

One of the standard tools for measuring liquidity risk is the ALM System which measures the cash flow mismatches at different time bands.
Banks must analyse the behaviour of assets and liabilities on the basis of assumptions and trend analysis supported by time series analysis. Variance analysis must also be taken up by the banks regularly to validate the assumptions. The impact of the prepayments of loans, premature closure of deposits must also be tracked by the banks.
The bank’s future liquidity surplus or deficit at a series of points of time can be predicted by measuring the difference between the cash inflows and outflows in each time

Show More
Related

  • Target Financial Ratios

    474 Words  | 2 Pages

    (TGT) 1.) Liquidity of short-term assets Current ratio 0.94 Cash ratio 0.06

    Read More

  • Costco Financial Ratios

    767 Words  | 4 Pages

    A liquidity ratio

    Read More

  • Delta Airlines Financial Ratios

    1942 Words  | 8 Pages

    Delta Airlines having a current ratio of less than one means that Delta cannot meet to pay obligations if they came apparent. The second liquidity measure I will be using is the acid-ratio test. This is equated by adding cash and accounts receivables minus short term investments divided by current liabilities. In 2016 Delta had an acid-test ratio of 0.43, and in 2017 they had 0.35. Companies are expected to have a ratio of at least 1.0, which means they have enough existing liquid assets to cover their bills, in this case Delta airlines have not got enough liquid assets to cover their bills.

    Read More

  • The Organizational Structure Of Bank Of America

    850 Words  | 4 Pages

    Organizational Structure Bank of America is an American financial services corporation and is the second largest bank holding organization by assets, in the United States. The headquarter of the financial organization is situated in Charlotte, North Carolina. The bank has approximately 5,700 retail banking offices and 17,250 ATMs in the United States. The online banking system of the bank has more than 30 million active users.

    Read More

  • The Financial System: The Federal Reserve System

    357 Words  | 2 Pages

    The Federal Reserve System consists of three basic tools for maintaining control over the supply of money and credit in the economy. The most important is open market operations, and it is also known as the buying and selling of government securities. To increase the supply of money, the Federal Reserve buys government securities from banks, other businesses, or individuals, paying for them with a check; when the Fed 's checks are deposited in banks, they create new reserves , a portion of which banks can lend or invest, in this way they increase the amount of money in circulation. On the other hand, if the Fed wants to decrease the money supply, it sells government bonds to banks, collecting reserves from them. Because they have lower reserves,

    Read More

  • Xacc/280 Week 4 Mini Case

    513 Words  | 3 Pages

    current liabilities are those with an expected life of less than 12 months. non current liabiities are those with lives expected to extend beyond the next year. 3) Stockholder equity and liability are the sole sources of funds in a firm. The ratio between equity and liability is critical, since it influences the firm 's long-term viability.

    Read More

  • Fractional Reserve Banking

    1113 Words  | 5 Pages

    C. List the two major assets and the main liability of a typical bank operating under a fractional reserve system.

    Read More

  • What Is The Pcnet Project Case Study

    674 Words  | 3 Pages

    Over the last few years, risk management has become an area of development in financial institutions such as Bank America, and Wells Fargo. Also being a part of Wachovia Bank looking back at their demines I am thinking there risk management would be handling different if they were allowed to turn back the hands of time. The area of financial services has been a business sector related to conditions of uncertainty. The financial sector is the most volatile in the financial crisis of 2008, or about 8 years ago. Activities within the financial sector are exposed to a large number of risks.

    Read More

  • Ryanair Financial Ratio Analysis

    2985 Words  | 12 Pages

    The above figures show that Ryanair as a company is far more liquid than BA. Ryanair was considerably higher than BA due to its small amount of liability, thereby meaning a low obligation to lenders. Indeed, this may reflect good liquidity in terms of liability management. However, the excessively high ratio as shown by Ryanair in 2012 at ratio of 2.14 (which conversely, BA was at their lowest), may also imply that the company possess too much of a certain type of asset, rather than maximizing its profitability through diversification. Regretfully, the result cannot be fully identified with current or acid ratio, and further analysis in the asset management or other liquid ratios is

    Read More

  • Gemini Electronics: Financial Analysis

    1341 Words  | 6 Pages

    Gemini Electronics has become a successful electronics company that looks to be growing on an upward slope. We can see where Gemini is booming, as well as where they are lacking, by analyzing their Ratios and Statement of Cash Flow. Liquidity measures a firm’s ability to meet its cash obligations; shown by calculating the Current Ratio and the Quick Ratio. Gemini’s liquidity has slightly increased from 2008 to 2009, but remains below the industry average. An acceptable Current Ratio should be around 2:1, which Gemini has exceeded in 2008 (2.52:1) and 2009 (2.56:1).

    Read More

  • Target Risk Management Case Study

    908 Words  | 4 Pages

    The risk management process establishes the methodology for risk enterprises framework for the of many businesses (Fraser & Simkins, 2010). A retail business such as Target needs to do a risk assessment to establish the types of risks being faced by the organization. The risk assessment process starts with the identification and categorization of risk factors. High customer interaction of the retail businesses like Target, need to identify risk as a continuous basis effort over the lifetime of the business (Mandru, 2016). It important that the business leaders, set goals and priorities for the risk management system.

    Read More

  • Ratio Analysis Of Nike

    4014 Words  | 17 Pages

    Analysis of Ratios Liquidity Ratios Current Ratio= CA/CL Current ratio is a financial ratio that evaluates if a business has an adequate amount of resources to cover its debt over the next business cycle (typically 12 months). It does so by relating company's current assets to its current liabilities. Standard current ratio values differ from industry to industry. The higher this ratio, the more proficient the company is to pay its debt.

    Read More

  • Strengths And Weaknesses Of The Banking Industry

    976 Words  | 4 Pages

    I would frame the banking as an industry that is built on trust. Trust that is reaffirmed by the governments, and regulators. Banks have an imperative role in our economic growth, and development. Correspondingly, without the bank industry, there is no industry to replace them as the conduit for social and economic policy. Equally important, there is no industry to replace them as the key performer in creating our economies multiplier effect.

    Read More

  • The Importance Of Confidentiality In Banking

    1550 Words  | 7 Pages

    In matters of confidentiality, Banking is risky due to the highly sensitive nature of information which is often exchanged, recorded and retained. The purpose of this article is to discuss the clash of confidentiality and disclosure in the banking sector across the globe. The Black’s Law Dictionary defines confidentiality as secrecy or the state of having the dissemination of certain information restricted. Breach of confidentiality, then, refers, to the violation of this trust that has been placed in another in a fiduciary relationship, in this case bank and their customers.

    Read More

  • Swot Analysis Of Grace Kennedy

    904 Words  | 4 Pages

    Exposure to credit risk is managed in part by obtaining collateral and corporate and personal guarantees. Counterparty limits are established by the use of a credit classification system, which assigns each counterparty a risk rating. Risk ratings are subject to regular revision. Liquidity Risk Liquidity risk is the risk that the company is unable to meet its payment obligations associated with its financial liabilities when they hall due and to replace funds when they are withdrawn. GK’s liquidity management process, as carried out within the Group through the ALCOs and treasury departments includes: o Monitoring future cash flows and liquidity on a daily basis o Maintaining a portfolio of highly marketable and diverse assets that can easily be liquidated as protection against any unforeseen interruption to cash flow o Maintaining committed lines of credit Currency Risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

    Read More

More about Liquidity In Banking

Open Document