Question

Liquidity management can be practiced on either side of the balance sheet. How are assets and liability management similar and how do they differ? Why smaller banks have limited access to liability management?

Answer 1

Liability management can be practiced on either side of the balance sheet , liability management emphasis the money market as a tool for borrowing liquidity aas needed .Liquidity in management is a concept broadly discribing company' s ability to meet financial obligations through cash flow , funding activities and capital management. Liquidity management can be challenging as it is impacted byrevenue and cost generating activities capital , divided plans and tax strategies .Assets management emphasize differing liquidity characteristics of various bank assets .Liability management emphasize the money market as a tool for borrowing liability as needed .Large banks are more able to consider liability management because they may tap the money market easily . Assets and liability management is the main tools of evaluating financial risk and for periodic testing and preparation of financial policies .Cash flow projections should be completed over a period to determine which assets will be switching from investment into liquid asset . This liquid assets converting in tolong term liquid assets .The liability side should be determine which debt psyments and short term liability will be due and how those should be managed to ensure liquidity .

Smaller banks have limited access to liability management because they hav limited amount of liabilities so as to avoid too much risk .Small banks have a few members of management that are tasked with running the entire bank and are not able to focus any specific needs of the bank. Liability management is acquiring liquidity from the liability side of the balance sheet .