Bank Capital and Liquidity
Tim Skeet
35 years: Debt capital markets
Tim explains the difference between Bank Capital and Bank Liquidity - a critical distinction that is all too often misunderstood.
Tim explains the difference between Bank Capital and Bank Liquidity - a critical distinction that is all too often misunderstood.
Bank Capital and Liquidity
14 mins 31 secs
Bank capital and liquidity perform different functions. Equity capital is provided by shareholders and is the first buffer against losses in a downturn. Equity enables banks to shrink the liabilities side of their balance sheets to match a shrinking asset base caused by losses. Liquidity can be deployed to meet short-term obligations such as large-scale sudden deposit withdrawals. Withdrawals reduce the liabilities side of the balance sheet; the liquidity portfolio can be shrunk to match that change.
Key learning objectives:
Explain the difference between capital and liquidity
Explain the role of capital in a property downturn
Explain how a bank uses it liquidity portfolio to deal with deposit withdrawals
Tim Skeet
03:24
04:22
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