Liquidity literally means ease of implementation, which implies the transformation of material values ​​into cash. There are such concepts of liquidity as liquidity of the market, bank, balance sheet and assets.
The liquidity of a commercial bank implies its solvency. A bank is liquid if the total amount of all its cash, other assets of a liquid nature and the ability to raise funds from its own sources in a short time are sufficient to repay all financial and debt obligations.
In addition, the bank must have a liquid reserve necessary to meet emerging financial needs. Mandatory reserves of commercial banks are largely able to secure the position of the bank in the event of unplanned circumstances.
The liquidity management of a commercial bank implies practical measures to monitor the state of all liquidity indicators and preparedness to respond to any deviations from the norm.
In theory, there are such directions of increasing the bank's liquidity as the requirements of repayment of loans issued on demand, non-renewal of loans, expansion of passive operations, issue of certificates of deposit, sale of a certain part of the securities portfolio, and loans from the Central Bank.
To maintain a stable position, the bank must have a certain liquidity reserve. It is necessary to cover unforeseen obligations caused by various external and internal circumstances.
The liquidity of a commercial bank depends on the political situation of the country, economic realities on a national scale, the state of the entire money market, the possibility of refinancing by the Central Bank, the state of the securities market, improving banking legislation, customer reliability, the nature of management in the bank, security with own capital, and other factors.
Central banks regulate the liquidity of a commercial bank through the establishment of restrictions that apply to bank liabilities, the limits of one borrower’s debt, control over the issuance of loans in especially large amounts, the refinancing system and the mandatory reservation of a certain part of borrowed funds, interest policy, securities transactions, etc. Russian solvency of commercial banks is also subject to regulation.
To maintain liquidity, the bank needs to forecast situations of possible outflows of deposits of the “demand deposits” category and “unreliable” term deposits, growth in demand for loans and other factors changing the economic situation.
To manage liquidity, the bank must correctly allocate assets and liabilities. For this purpose, tables of accounts are compiled and they determine which part of liabilities should be placed in liquid articles of active accounts in order to prevent a decrease in the liquidity ratio.
The liquidity of a commercial bank depends on the state of its assets. Depending on the ease of conversion to cash, the bank’s assets are divided into liquid and illiquid.
Liquid funds are in immediate readiness. This is cash on hand, first-class bills, precious metals, government securities, funds held on the correspondent account with the Central Bank.
Liquid funds that are at the disposal of the bank, and can be transferred into money, these are loans and payments to the bank with a maturity of not more than one month; Conditionally traded securities; other values ​​(including intangible assets).
Illiquid assets are bad debts; overdue loans; investments in real estate, buildings and structures of the bank; unquoted securities.
To maintain the liquidity of the bank, it is impossible to raise funds on a short-term basis with a long-term direction of funds.
The liquidity of a commercial bank (its level) is evaluated in practice by comparing its liquidity indicators with the standards established by the Central Bank of Russia.