Question

Assume a bank experienced a big deposits outflow and does not hold enough required reserves due to its poor liquidity management. What can the bank do to raise funds and meet the required reserve amount in a short time period? Discuss the potential cost associated with these activities.

Answer 1

Bank can do following measures in order to to raise funds and meet the Reserve requirement amount in short period through-

A. It can invite various private equity investors and they will be providing funds to the company in exchange of portions of ownership

B. It can also issue new shares in the market and raise capital from the market itself

C.it can also go for recapitalisation of its overall books of accounts in order to to arrange money in the short term

D.it can arrange money through selling of other loans to the asset reconstruction companies which are doubtful in nature

E. It can also lag the payments to the creditors so that the liquidity can be managed in the short run and working capital can be increased

F.it can also issue right shares and it will be helpful for the bank to raise capital to enhance the Liquidity in the short-term.

So, the bank can follow these measures in order to raise the liquidity and meet the required reserve obligation.