-If the bank experiences a $50,000 sudden liquidity drain caused by a loan commitment draw down, what will be the impact on the balance sheet if stored liquidity management techniques are used?
A)A reduction in cash of $21,000 and an increase in demand deposits of $29,000.
B)A reduction in securities and/or current loans totaling $50,000.
C)A reduction in cash of $21,000 and a decrease in securities holdings of $29,000.
D)A decrease in equity of $50,000.
E)A decrease in lending of $50,000.

Question

-If the bank experiences a $50,000 sudden liquidity drain caused by a loan commitment draw down, what will be the impact on the balance sheet if stored liquidity management techniques are used?
A)A reduction in cash of $21,000 and an increase in demand deposits of $29,000. 
B)A reduction in securities and/or current loans totaling $50,000. 
C)A reduction in cash of $21,000 and a decrease in securities holdings of $29,000. 
D)A decrease in equity of $50,000. 
E)A decrease in lending of $50,000.

Quizplus · Accepted Answer

Stored liquidity management involves selling securities or liquidating assets to meet liquidity needs, so the bank would reduce securities and/or current loans by $50,000 to cover the liquidity drain.

-If the Bank Experiences a $50,000 Sudden Liquidity Drain Caused