When banks use stored liquidity management, they
A)must pay interest on the funds that are stored.
B)store the funds at the U.S.Treasury.
C)necessarily increase the asset side of the balance sheet.
D)may shrink the balance sheet if cash is used as the liquidity adjustment mechanism.
E)threaten the capital position of the institution.

Question

Quizplus · Accepted Answer

When banks use stored liquidity management, they may shrink the balance sheet if cash is used as the liquidity adjustment mechanism. This means that the bank's assets may decrease, as they are using cash on hand to manage their liquidity. However, this does not necessarily threaten the capital position of the institution, and there is no requirement to store the funds at the U.S. Treasury or pay interest on the funds that are stored.

When Banks Use Stored Liquidity Management, They