The anticipated income theory was developed by H. CF is the investment possibility line which shows all combinations of cash and earning assets. It also allowed necessary advances to its member banks secured by "any sound asset" that would otherwise be described as ineligible by the orthodox theory to provide bank reserves.
So the smaller banks are at a disadvantage in this respect. Therefore, the bank must hold a sufficiently large proportion of its assets in the form of cash and liquid assets for the purpose of profitability. It also fails to meet emergency cash requirements.
Disadvantage Shiftability theory has its own demerits. First, they acquire liquidity so they automatically liquidate themselves. But the availability of funds through these sources depends on the amount of dividend or interest rate which the bank is prepared to pay.
This war is pitched between efficient liquidity management on one hand and profitability on the other. Firstly, only shiftability of assets does not provide liquidity to the banking system.
The central bank was expected to increase or erase bank reserves by rediscounting approved loans. The Liabilities Management Theory: In the capital of banks was about three times the deposits, but less than one hundred years later depositors had come to represent approximately 68 percent of the equity in banks.
Prochanow in on the basis of the practice of extending term loans by the US commercial banks. We discuss these sources of bank funds briefly. It is also prohibited by law to assume large risks because it is required to keep a high ration of its fixed liabilities to its total assets with itself and also with the central bank in the form of cash.
Moulton who insisted that if the commercial banks continue a substantial amount of assets that can be moved to other banks for cash without any loss of material.
Then the bank need not rely on maturitis in time of trouble. It assures safety, liquidity and profitability.
But the amount of liquidity which the bank can have depends on the availability and cost of borrowings. First, if a bank declines to grant loan until the old loan is repaid, the disheartened borrower will have to minimize production which will ultimately affect business activity.3 SHIFTABILITY THEORY OF LIQUIDITY An explanation of bank liquidity that holds that a bank’s capacity to meet liquidity demands is related to the volume of its.
Liquidity vs. Shiftability Theories of Banking: Commercial Paper Theory of Bank Credit vs. "Real Bills" Doctrine. Shiftability Theory This theory posits that a bank’s liquidity is maintained if it holds assets that could be shifted or sold to other lenders or investors for cash.
Shiftability is an approach to keep banks liquid by supporting the shifting of assets. When a bank is short of ready money, it is able to sell its assets to a more liquid bank.
3 SHIFTABILITY THEORY OF LIQUIDITY An explanation of bank liquidity that holds that a bank’s capacity to meet liquidity demands is related to the volume of its. Shiftability Theory Shiftability is an approach to keep banks liquid by supporting the shifting of assets.
When a bank is short of fundamental contribution of this theory was to consider both sides of a bank’s balance sheet as sources of liquidity (Emmanuel, ).Download