The high-profile bank failures in March 2023 demonstrated that static measures of liquidity are not accurate representations of an institution’s true liquidity position. The ability to generate cash at a reasonable cost without loss of principal turned out to be the most important liquidity test. It’s time to revisit long-standing, past measures of liquidity and consider whether they continue to make sense in today’s banking environment.
As extensively evaluated in the white paper, Exposing the Fallacy of the Loan-to-Deposit/Share Ratio, the loan-to-deposit/share ratio has run its course as an appropriate liquidity metric. The industry is moving toward a more dynamic evaluation of liquidity that considers cash flows as they relate to the balance sheet and their role in an institution’s business plan or strategy. This is a shift away from ratio analysis as the predominant liquidity measure.
Resources and Latest News
Whether you want to watch, listen or read, we have content that fits your preferences.
All Resources