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Liquid Assets in Banks: Theory and Practice ... - …
LiquidAssetsinBanks:TheoryandPracticeGui llermoAlgerandIngelaAlger November1999 AbstractThispapersummarizestheoretical ndingsaresummarizedinaseriesofprediction s, ,we ndthatbankswithrelativelymoredemanddepos itshaverelativelylessliquidassets, :aretherebanksthatrelymorethanothersonli quidassetstomeettheirliquidityneeds?We cation:G21;G28 Keywords:LiquidAssets;Banks;LiquiditySho cks o,XavierFreixas,DenisGromb, onNacionalBancariaydeValores(M exico)forthedataset, , ,andwewouldliketothankthemfortheirhospit ality, ,byreviewingexistingtheoryandempirical ndings,andbyprovidingsometestsoftheoreti calpredictions, , (typicallylong-term)loans;indeed,itmayke epsomeofthefundsincash(orreservesatthece ntralbank) , 'balancesheets1revealsthatasubstantialpa rtofavailablefundsareindeedinvestedinliq uidassets:addingupsecurities,duesfromdep ositoryinstitutions,andcash, ,thequestionis:whydobanksholdliquidasset s?Ouranalysisofthisquestionbeginswithare viewofexistingtheories,includingthosewhi chdonotfocusdirectlyonhowbanksdeterminet heirlevelofliquidassets, rstone,theportfoliomanagementtheorydevel opedinthe50'sand60's, , ,viewingliquidassetsastheresidualbetween ,ontheonehand,thebank'sequityandliabilit ies,andontheotherhand, rstcategoriesoftheoriesdonotexplicitlyta keintoaccountoneofthespeci citiesofbanks,namely,thattheyfacepotenti allylarge,randomliquidityshocks(duetounp redictabledepositwithdrawals,andorunpaid credits).
Liquid Assets in Banks: Theory and Practice Guillermo Alger and Ingela Alger No v em ber 1999 Abstract This pap er summarizes theoretical ndings on the determinan
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