Quiz – Matching Liquidity Ratios of Banks
Background
Understanding the key drivers of liquidity is critical to analysing a bank of any financial institution. A bank’s access to liquidity is important in the daily running of the business and can become vital in terms of crises, either in terms of the individual bank or during a sector wide banking crisis (as have been experienced in Russia, Turkey, Argentina, Ireland and Greece amongst others). A bank’s access to liquidity is particularly important for investment banks due to the fact that they have no access to stable customer deposits as a form of funding. This quiz is designed to demonstrate the differences, which can arise in the liquidity ratios between difference financial institutions and different countries.
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Quiz
The table below shows two liquidity ratios (Liquid Assets / Total Assets and Net Loans / Customer Deposits) and one useful funding ratio (Customer Deposits / Total Assets).
Please match the institution with the ratio and give an explanation as to your results.
| Liquid Assets* / Total Assets | Loans / Deposits | Customer Deposits / Total Assets | Bank (1, 2, 3, 4, 5) | |
| A | 57% | N/A | N/A | |
| B | 16% | 70% | 84% | |
| C | 20% | 84% | 77% | |
| D | 16% | 112% | 51% | |
| E | 61% | 30% | 63% |
*Liquid assets = cash and cash equivalents, reverse repos and Fed Funds and government securities
- Wells Fargo: AA-rated US retail bank
- Goldman Sachs: US investment bank with very small commercial banking subsidiary
- Rothschild Bank: Swiss private bank, with business focussed on high net worth individuals
- Bank of India: 4th largest bank in India (state owned) with dominant position in deposit market
- BBVA: Spanish Bank operating in both retail and wholesale markets on a global basis
Here is the answer of this quiz.