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A Note on Evaluating Liquidity under Conditions of Uncertainty in Mutual Savings Banks

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  • McCall, Alan S.
  • Murphy, Neil B.

Abstract

In this paper, a risk-analysis simulation procedure was utiliijed to incorporate both a cash-flow liquidity concept and uncertainty in a liquidity-planning simulation model. The components of cash flow were specified. The model was implemented with the assistance of a large savings bank. The results indicate that a substantial dispersion in probable outcomes exists, from a $1 million outflow to $10 million inflow. The expected net flow, $5 million, greatly exceeds the point estimate derived by simply summing the individual point estimates. In fact, there is a 50 percent chance that the net flow will exceed the point estimate by more than $1.5 million. Such results from the liquidity planning model clearly give the banker a basis for determining the adequacy of his present liquidity position and therefore his cash management policy, as well as the optimum strategy in terms of various adjustment policies.

Suggested Citation

  • McCall, Alan S. & Murphy, Neil B., 1971. "A Note on Evaluating Liquidity under Conditions of Uncertainty in Mutual Savings Banks," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 6(4), pages 1165-1169, September.
    • Handle: RePEc:cup:jfinqa:v:6:y:1971:i:04:p:1165-1169_02
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