Managing liquidity with consideration of business cycle phases
Journal: Strategy and mechanisms of regulation of industrial development (Vol.5, No. 5)Publication Date: 2013-12-01
Authors : Bondarenko V.V.;
Page : 209-224
Keywords : liquidity; commercial bank; management; risk; business cycle; economic cycle; phase; indicators; credit; assets; liabilities;
Abstract
The paper examines the problem of liquidity management in a commercial bank taking into account the phase of business cycle. Each phases of the business cycle (excitement, growth and peak, recession, depression and crisis) is analyzed consistently, as well as its characteristic features. Basic indicators which can determine the replacement of one phase to another are considered. A list of tools and ways to manage bank liquidity in each phase of the business cycle is offered, the use of which will be most effective and will reduce the risk of liquidity deficit and financial stability reduction. At the post-crisis stage of economic recovery, the appropriate policy of bank liquidity management is to establish such instruments as short-term bank and inter-bank loans for a period of 1 to 12 months, differentiation and synchronization of deposit and lending rates, purchase of top-notch short-term bills, state and municipal securities, fixed-term deposits and guaranteed loans. At the stage of sustainable economic growth, among the traditional tools and methods of bank liquidity management more efficient and effective can be a long-term lending and investing, which makes it possible to provide a steady flow of non-discretionary liquidity over a long period. It must be combined with the involvement of long-term bank liabilities, and diversification of the loan portfolio as a means of risk management assets involved. At the stage of recession, bank liquidity management should be carried out taking into account the increasing likelihood of reduced inflows and sudden increase in the number of claims on bank liabilities. To eliminate the deficit of the current and long-term liquidity, the most appropriate and effective measures can be making the assets through the implementation of the financial markets, securitization of bank assets, and the tightening of the requirements for the credit. During the depression and crisis, the attention should be accented on a more efficient management of liabilities of the bank. Based on the coducted analysis, the concept of management of bank liquidity is offered, taking into account the phase of the business cycle.
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