Question: Identify and explain both the supplies of Liquidity and Demand of Liquidity of

the commercial Bank in brief.

Answer:
Liquidity: Liquidity in banking refers to the ability of a bank to meet its financial obligations
as they come due. It can come from direct cash holdings in currency or on account at the
Federal Reserve or other central bank. More frequently, it comes from acquiring securities
that can be sold quickly with minimal loss.
Examples of transaction that affect the bank’s cash balance and liquidity position: Deposits
and withdrawals; loan disbursements and loan payments
Supplies of Liquidity: The sources from where a commercial bank gets the liquid funds are
called supplies of liquidity. Some supplies of liquidity are given below:
• Incoming Customer Deposits
• Revenues from the Sale of Non-deposit Services
• Customer Loan Repayments
• Sales of Bank Assets
• Borrowings from the Money Market
Demands for Liquidity: Demand of liquidity in bank means the availability of cash in the
amount and at the time needed at a reasonable cost. The size and volatility of cash
requirements affect the liquidity position of the bank. Some demand of liquidity funds are
given below:
• Customer Deposit Withdrawals
• Credit Requests from Quality Loan Customers
• Repayment of Non-deposit Borrowings
• Operating Expenses and Taxes
• Payment of Stockholder Dividends