A Quantitative Liquidity Model for Banks by Christian Schmaltz

By Christian Schmaltz

Christian Schmaltz identifies product funds flows, investment unfold, investment potential, haircuts, and temporary rates of interest as key liquidity variables. Then, he assumes particular stochastic tactics for the main variables resulting in a specific liquidity version. The version is used to derive liquidity cash move costs and to optimally deal with liquidity.

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Hence, liquidity concepts are distinct, but related. In a bank, all three concepts come together. 5 Summary Liquidity is a term that subsumes several concepts. The literature distinguishes asset, institutional and national liquidity. Asset liquidity refers to the cost to liquidate assets. In pricing models, the costs are modelled by discount markups. In liquidity managment, they are modelled by haircuts. Marketable assets are more liquid than non-marketable assets; nevertheless, markets are not a guarantee for perfect liquidity.

The balance sheet of the Bundesbank can be found in the Annual Report (see [Deutsche Bundesbank, 2007, p. ]). The ECB’s main refinancing operation is a weekly repo (tender). See [European Central Bank, 2006, p. 8]. 5. 31 We introduce a real sphere endowment to separate the real and monetary sphere, and to keep the monetary sphere as simple as possible. g. securities) would introduce an additonal degree of complexity without gaining any additional insight. 30 22 2 Liquidity Concepts Fig. 2 Bank Balance Sheet and Liquidity Concepts National liquidity comprises the asset side of bank A: the sum of banknotes (central bank money) and (illiquid) loans (book money).

86] and [Issing, 2001, p. 169]. See [Reimund, 2003, p. ],[K¨ornert, 1998, p. 66], [Issing, 2001, p. , 2002, p. 880]. The latter lists ’International liquidity’ as a separate liquidity category. 3 See inter alia [Brunner, 1996, p. , 2002, p. 880], [Mankiw, 2001, p. 647], [Saunders and Hugh, 2001, p. 127] and [Timothy W. Koch, 2000, p. 125]. , 2002, p. ]. 5 ’Self-Liquidation’ is a particular case of ’Shiftability’ where the liquidation value is prohibitively small and time to liquidation is maturity.

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