Bank Liquidity: Essence, Factors of Influence and Methods of Assessment

Abstract

Liquidity is the basis for the successful functioning of a bank. Loss of liquidity leads to a loss of solvency and, as a result, to an unsustainable financial condition of the bank. Today, special attention is paid to ensuring the liquidity of both an individual bank and the banking system as a whole. The article discusses theoretical approaches to the essence of the concept of «bank liquidity». As a result of the analysis, the main features of the bank’s liquidity have been allocated, namely: the ability to fulfill obligations in a timely manner and meet the needs for funds; balance between the terms and amounts of repayment of placed assets and the terms and amounts of fulfillment of the bank’s obligations; meeting the needs of solvent customers and fulfilling balance sheet and off-balance sheet obligations; ensuring solvency and fulfillment of payment obligations; providing loans and ensuring the protection of customers. The strategy of management of the bank’s assets is considered, its advantages and disadvantages are substantiated. External and internal methods for assessing the bank’s liquidity are presented, their essence and features of application are considered. The main internal factors that determine the liquidity of banking institutions are classified as follows: the structure of the resource base; adequacy of the bank’s equity; balance of the bank’s assets and liabilities by terms and amounts and in the context of individual currencies; financial results of the bank’s activities.

Keywords

• sustainability of the bank
• liquidity of the bank
• solvency
• quality of assets
• quality of liabilities