Can banks create liquidity
Literature: Issing, O., Introduction to Money Theory, 9th edition, Munich 1993.
Liquidity of credit institutions Bank liquidity refers to all funds that banks need to ensure their solvency. This basically includes all assets that can be exchanged (liquidated) for cash at any time. This includes, in particular, exchange-traded securities and balances with other credit institutions. However, the banking system as a whole cannot pay with claims between banks, but only with central bank money. The macroeconomically relevant liquidity resources of the credit institutions therefore only include the current stocks of central bank balances and cash plus potential balances that can be obtained from the Deutsche Bundesbank until the introduction of the European Central Bank (ECB), i.e. until the end of 1998, in particular through the use of unused rediscount quotas.
(English bank liquidity) Bank liquidity (liquidity of credit institutions) describes all funds that banks need to ensure their solvency. These are basically all assets that can be exchanged (liquidated) for cash at any time. This includes, in particular, exchange-traded securities and balances with other credit institutions. However, the banking system as a whole cannot pay with claims between banks, but only with central bank money. The macroeconomically relevant liquidity level of credit institutions therefore only includes the current stocks of central bank balances and cash plus potential balances that can be obtained from the European Central Bank (ECB), in particular by using unused rediscount quotas.
is the amount of central bank money that is the difference between bank deposits from non-banks (private, industrial, etc.) and the loans granted to non-banks. Bank liquidity is particularly important for the creation of money.
Also: liquid. Banks solvency, i.e. their ability to meet all due and due payment obligations at all times. Central business policy postulate in banking and subject to intensive banking supervisory regulation (KWG, liquidity principle). Object of the banking liquidity policy. At the same time, an intermediate target or an indicator for the central bank's monetary policy. Bank liquidity.
The "liquid" funds that the banks need to maintain their willingness to pay. From the point of view of the individual bank, this basically includes all assets that can be exchanged (liquidated) for cash at any time; The banking system as a whole, however, cannot pay with claims between banks, but only with central bank money. Therefore, only the central bank balances, their cash balances and the free credit lines at the central bank are taken into account for the macroeconomic liquidity of all banks.
Ability of banks to meet their payment obligations on time (bank liquidity in the subjective sense). Because of the uncertainty of incoming and outgoing payments and to bridge gaps in payments that are predictable but differ in terms of time and / or amount, the credit institutions need a) assets that are available immediately or at short notice at acceptable costs for payments to non-banks, domestic and foreign Banks and the central bank can be used, b) credit and money market lines that can be used with certainty, at least with sufficient probability, and at acceptable interest rates (bank liquidity in the objective sense). Assets and credit facilities that have these characteristics are the liquid assets of credit institutions, from a banking perspective, i.e. from a microeconomic perspective. In particular, this includes balances at the central bank, operating balances as well as overnight and monthly money at commercial banks, treasury bills, bonds with a short remaining term and sufficiently secure refinancing options at the central bank or a commercial bank. From a macroeconomic point of view, the liquid funds of the credit institutions consist only of that part of their microeconomic liquid assets that represent current or potential central bank money, i.e. of central bank balances, cash, central bankable assets (e.g. money market papers with purchase commitment by the monetary institution) and sufficiently secure refinancing options at the central bank . In terms of their liquidity quality, these reserves are fundamentally not superior to the merely microeconomically liquid values. The objective of reducing bank liquidity to current central bank money and central bank-eligible assets can be justified by the fact that the banks are only solvent economically if they have money that they cannot create themselves. - Money of this quality is current and potential central bank money. The macroeconomic liquid funds of the banks are also part of the monetary base. Both the credit institutions' individual and macroeconomic stocks of liquid assets can be qualitatively graded in two respects: On the one hand, a distinction can be made between highly liquid and limited liquid assets (or those of the first and second degree), depending on how good the positions concerned are Fulfill liquidity criteria, on the other hand, between desired and excess reserves. Desired (or required) reserves are to be understood as those that are considered necessary or desirable by the bank to secure its liquidity needs and / or are administratively prescribed, for example to meet the minimum reserve requirements and the minimum liquidity requirements of the banking supervisory authority. The - excess reserves (or free reserves) are the difference between total and desired liquid assets. Both the total microeconomic reserves and the excess reserves of the banks contained therein are considerably larger than their corresponding central bank money reserves. The excess reserves are important for monetary policy. They form a link in the chain of transfer of liquidity policy measures by the central bank, regardless of whether the monetary authority adheres to monetarism or pursues a differently oriented policy. The credit offer of the banks i.S. The general willingness to extend additional loans depends, among other things, on your liquidity level, because a loan expansion is generally is associated with liquidity outflows or reduces or depletes net inflows. An increase in the excess reserve thus has a stimulating effect on the supply of credit, while a decrease has a dampening effect. Since banks act and plan economically like other companies, a credit-influencing role is to be expected from the microeconomic (and not from the macroeconomic) excess reserves: payments that a bank has to invoice as a result of a planned credit expansion only have to be made to a small extent be paid in central bank money (especially cash deductions and higher minimum reserves from internal settlements). In addition, the relatively small free reserves of central bank money are usually insufficient to cover the considerable credit outflow rates even at large credit institutions. Although the central bank has no direct access to the microeconomic surplus reserves, it influences the bank's willingness to borrow in its monetary policy. It has a direct impact on macroeconomic bank liquidity or surplus liquidity when it offers or withdraws central bank money or tolerates market influences. Changes in the macroeconomic liquidity status, however, generally result in movements in the microeconomic excess reserves in the same direction, whereby an expansive central bank policy can also improve the quality of operational reserves and a restrictive central bank policy can reduce them. But the synchronization, especially in the short term, is not so good that the central bank does not have to worry about the determining factors of those processes that translate the macroeconomic impulse into the business one. The assessment factors are in the banking and non-banking sector and are also to a large extent dictated by liquidity requirements from the banking supervisory authority (- banking supervision). Formally, the bridge between the central bank money supply (A Z) and the customer credit supply of the banking system (A K) can be built using two multipliers: A liquidity multiplier (m1) bundles those processes that result in changes in the operational surplus reserves when implementing the macroeconomic monetary policy impulse. A microeconomic credit supply multiplier (mk) indicates the extent to which changes in the bank's liquidity status provide incentives for a higher or weaker additional supply of bank loans. AZ • m1 • mk = AK, whereby for the microeconomic credit multiplier, subject to the simplifying prerequisite, that the liquidity inflow runs through the assets side of the bank balance sheets and that the maturity transformation does not play a role in the expansion of the credit supply. (b, bf = bank supervisory and minimum reserve or voluntary liquidity quota in the microeconomic sense; de = microeconomic withdrawal rate; w = part of AK that consists of highly liquid assets for banking operations, e.g. bills of exchange eligible for central bank or short-term securities issued by non-banks; weighted average values in each case ). In the economic literature, the liquid funds of the banks are understood in the macroeconomic sense and mostly dealt with in connection with the - monetary base and the money supply process built on it (- money supply).
Literature: Issing, O. (1998). Honeck, G. (1989)
Solvency of a banking business. Like any business, a bank is also at risk of bankruptcy if it cannot meet its payment obligations. But it is more difficult for a bank than for other companies to ensure solvency. On the one hand, the daily cash inflows and outflows are largely based on decisions made by bank customers (depositors, borrowers), so that they are much less predictable than the cash flows in an industrial or commercial enterprise; on the other hand, the bank has practically no option for deferral. While an industrial or trading company can postpone payments due for some time by agreeing a deferral or simply accepting reminders, the existence of a bank is immediately jeopardized if it fails to meet its payment obligations, even for a short period of time. Measures on two levels serve to ensure solvency: • Long-term provision by aligning the duration of the capital commitment in loans and other assets to the deadlines by which the bank has received funds, especially in the form of deposits are (golden banking rule). • Provision in the short term, by constantly adapting the cash holdings and the ability to raise funds to the requirements that result from the cash outflows and inflows triggered by the customers (cash management).
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