Economic Themes (2008) 46 (3) 4, 53-69

BANK LIQUIDITY versus SOLVENCY: A BANK BALANCE SHEET ANALYSIS


Srđan Marinković, Žarko Popović

Abstract: Liquidity and solvency of financial institutions are two concepts that share a big part of common features. But the difference between could be sometimes so important that ignoring it produces huge social costs. This paper is aimed to present a slightly more formal framework than usual in such discussions. Despite not being a complete model it is still useful in analyzing the distinction. Our approach is based on analysis of balance sheet. We take maturity compositions of assets and liabilities as primary focus of analysis able to indicate some crucial differences between the concepts.

Keywords:  bank; solvency; liquidity; balance sheet maturity composition

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