How and why does a bank face liquidity risk

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Reference no: EM132035327

Uncertainty over deposit levels has been called the "essential problem of banking".

a) What does this mean? Why is it a problem? Explain this risk.

b) How and why does a bank face liquidity risk, and how can it guard itself against it? Explain in detail.

c) Thinking about bank theorizing and your discussion above, is it sufficient to theorize a generic "bank"?

Carefully discuss how taking care with deposit uncertainty, as discussed in parts a) and b) can lead us to a richer notion of "bank" and their portfolio decision making.

d) How does this allow us to augment our discussion of banks by size or behavior?

Having a more complex theory of bank behavior is only good if the extra explanatory or descriptive power gained is not lost in all the complexity. We would like to see evidence. Do we have any evidence that supports this greater complexity? Explain.

Reference no: EM132035327

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