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Theoretical Theories Of Bank Liquidity Management

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Theoretical literature

This part present some theoretical aspects related to banks liquidity concept, the need for liquidity, theories of liquidity management, banks profitability and its measures, as follows:

The concept of banks liquidity
Bank liquidity is a key element in managing the assets of a bank. Banks liquidity is the ability to meet financial obligations as they come due. The robust and sound liquidity management could raise funds to meet the demands of depositors and borrowers at any time with a satisfactory price. Without sufficient liquidity, the bank may face other risks that will affect the bank stability as a whole. Liquidity in Commercial Bank means the bank’s ability to finance all its contractual obligations when due, and these obligations can include lending, investment and withdrawal of deposits and maturity of liabilities, which happen in the normal course of the Bank actions (Amengor, 2010).

Theories of liquidity management
There are a number of liquidity management theories consists of:

1. Shiftability Theory
Shiftability is an approach to keep banks liquid by supporting the shifting of assets. When a bank is short of ready money, it is able to sell its assets to a more liquid bank. The approach lets the system of banks run efficiently: with fewer reserves or investing in long term assets. Under shiftability , the banking system tries to avoid liquidity crises by enabling banks to always sell or repo at good prices.

2. Anticipated Income

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