We may be through the worst of it,
But we aren’t out of the weeds yet.
To stay afloat, banks will have to manage liquidity well.
When I consult with a bank struggling to manage liquidity, here’s how I get them to a safer place:
1. Examine the balance sheet and deposits.
First, determine the duration of deposits.
How many demand deposits?
How many are time-bound?
Assess the stability of all of them, and figure out what impact they may have on the bank.
2. For large banks – review investor materials for disclosures related to liquidity management.
Then let it be your guide.
It was given to you for a reason.
Don’t become insolvent because of your own willful ignorance….
3. For smaller banks – engage with key stakeholders (board members, owners, or bank presidents) to inquire about liquidity management practices.
Then take their advice.
Thanks to the low interest rate environment from ‘09-’21, there’s a good chance you’ve never really had to deal with managing liquidity.
These veterans have.
Let them guide your path.
4. For customers – gauge the bank’s transparency and willingness to address liquidity concerns.
Even if things aren’t great, but they’re honest, you’re likely fine.
That means they are really working to fix it.
And if it’s bad enough—you’ll know.
Because they just told you.
If they don’t want to be transparent,
Run for the hills.
It’s most likely because they aren’t prepared for what’s coming and they don’t want word getting out.
Go ahead and withdraw your deposits and find a new bank.
There are 0 valid reasons for banks to not be transparent about their liquidity.
Don’t let them convince you otherwise.
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Digging deep on banks is what I do.
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