Core Liquidity

AAA

DEFINITION of 'Core Liquidity'

Cash and other financial assets that banks possess that can easily be liquidated and paid out as part of operational cash flows. Examples of core liquidity assets would be cash, government bonds and money market funds. Banks typically use forecasts to anticipate the amount of cash that account holders will need to withdraw, but it is important that banks do not over-estimate the amount of cash and cash equivalents required for core liquidity because unused cash left in core liquidity cannot be used by the bank to earn increased returns.

INVESTOPEDIA EXPLAINS 'Core Liquidity'

For example, assume that XYZ bank can charge 15% interest on loans. In the event that the bank over-estimates the amount of core liquidity needed by $100,000, the bank will miss out on $15,000 worth of revenue because it has $100,000 in cash tied up that can't be used for lending.

RELATED TERMS
  1. Direct Market Access - DMA

    This refers to electronic facilities, often supplied by independent ...
  2. Cash And Cash Equivalents - CCE

    An item on the balance sheet that reports the value of a company's ...
  3. Liquidity Risk

    The risk stemming from the lack of marketability of an investment ...
  4. Loan

    The act of giving money, property or other material goods to ...
  5. Liquidity

    1. The degree to which an asset or security can be bought or ...
  6. Interest

    1. The charge for the privilege of borrowing money, typically ...
Related Articles
  1. Investing Basics

    The Working Capital Position

    Learn how to correctly analyze a company's liquidity and beat the average investor.
  2. Investing

    Why do commercial bills have higher yields than T-bills?

    The reason that commercial bills have higher yields than T-bills is due to the varying credit quality of each bill type. The credit rating of the entity issuing the bill gives investors an idea ...
  3. Retirement

    The Money Market

    If your investments in the stock market are keeping you from sleeping at night, it's time to learn about the safer alternatives in the money market.
  4. Fundamental Analysis

    How do I use the PEG (price to earnings growth) ratio to determine whether a stock is overvalued?

    Using the PEG, or price/earnings to growth, ratio provides a better picture of a stock's valuation versus simply relying on the P/E ratio.
  5. Taxes

    What is the best method of calculating depreciation for tax reporting purposes?

    Learn the best method for calculating depreciation for tax reporting purposes according to generally accepted accounting principles, or GAAP.
  6. Fundamental Analysis

    Are accounts receivable used when calculating a company's debt collateral?

    Learn how accounts receivables are recorded as assets on a balance sheet; they are used when calculating a company's total debt collateral.
  7. Fundamental Analysis

    Work In Progress (WIP)

    Work in progress, also know as WIP, is an asset on the company balance sheet. WIP is the accumulated costs of unfinished goods that are currently in the manufacturing process.
  8. Fundamental Analysis

    What is the difference between cost of equity and cost of capital?

    Read about some of the differences between a company's cost of equity and its cost of capital, two measures of its required returns on raised capital.
  9. Fundamental Analysis

    Is depreciation only used for tangible assets?

    Learn if tangible assets can be depreciated, as well as what other assets are eligible for depreciation so you can account for them accurately.
  10. Fundamental Analysis

    What does a high weighted average cost of capital (WACC) signify?

    Find out what it means for a company to have a relatively high weighted average cost of capital, or WACC, and why this is important to lenders and investors.

You May Also Like

Hot Definitions
  1. Multiplier Effect

    The expansion of a country's money supply that results from banks being able to lend. The size of the multiplier effect depends ...
  2. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  3. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  4. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  5. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  6. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
Trading Center