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One of its amendments provided that, a federal reserve bank may discount any commercial, agricultural or industrial paper for liquidity purposes. It also allowed necessary advances to its member banks secured by "any sound asset" [2] that would otherwise be described as ineligible [2] by the orthodox theory to provide bank reserves.
In macroeconomics, an open market operation (OMO) is an activity by a central bank to exchange liquidity in its currency with a bank or a group of banks. The central bank can either transact government bonds and other financial assets in the open market or enter into a repurchase agreement or secured lending transaction with a commercial bank.
In other words, using shorter-term deposits to fund longer-term loans. This can lead to bank runs during which depositors demand repayment of their demandable and maturing deposits, before the borrowers are required to repay the loans. [1] The result could be a liquidity crisis, which refers to an acute shortage (or "drying up") of liquidity.
Before that, the Board of Governors of the Federal Reserve System used to set reserve requirements [17] (“liquidity ratio”) based on categories of deposit liabilities ("Net Transaction Accounts" or "NTAs") of depository institutions, such as commercial banks including U.S. branches of a foreign bank, savings and loan association, savings ...
Regulators are showing increased interest in the provision of last look liquidity in the FX market, with the Bank of England conducting a 'Fair and Effective Markets Review' (FEMR) which included recommendations for the FX industry. In response, the FX industry has moved towards adopting a global code of conduct. [3]
Here, Treasury is responsible for the key funds transfer pricing (FTP) function, that prices liquidity for business lines within the bank; i.e., where funds that go toward lending products (asset sales teams) are charged a term and risk-appropriate rate, whereas funds generated by deposits (and related) are credited similarly.
Asset and liability management (often abbreviated ALM) is the term covering tools and techniques used by a bank or other corporate to minimise exposure to market risk and liquidity risk through holding the optimum combination of assets and liabilities. [1]
In banking, liquidity is the ability to meet obligations when they come due without incurring unacceptable losses. Managing liquidity is a daily process requiring bankers to monitor and project cash flows to ensure adequate liquidity is maintained. Maintaining a balance between short-term assets and short-term liabilities is critical.