Each banking institution has different types of assets. They are divided into long-term, simple, instant. It is the latter that have the highest influence on a banking institution. Highly liquid assets include cash on hand, deposits of private and legal entities, balances on current accounts, securities, mortgage bonds, foreign currency, stocks and other similar elements. Due to the existence of such a parameter, stable and reliable operation of not only one specific bank, but the entire financial system as a whole is ensured.
Highly liquid assets
Only those elements that meet several requirements at the same time can be accepted for their calculation. First of all, the right to make decisions that will allow to receive money for these assets in a short time should be with the corresponding banking unit. Also, they should not belong to the group that is used for the current direct functioning of the institution or is under the burden of various types of obligations. Securities can be included in highly liquid assets of a banking type organization only if they are its property or if legislatively secured opportunities for managing such elements from the direct owner are obtained. It should be noted that they, depending on the type and features, can belong to different levels of VLA. Thus, we can conclude that all highly liquid assets of the bank are almost any elements that can be converted into cash in the short term, and there are no obstacles for this.
The composition of highly liquid assets
Highly liquid financial assets of a banking enterprise include two levels (VLA-1 and VLA-2). Moreover, the second level is also divided into two subcategories: type A and B. It should be noted that no discount factor is applied to VLA-1, but in the VLA-2 variant it is used, and here there is already a direct dependence on the subcategory. So, for VLA-2A, a coefficient of 15% applies, and for VLA-2B, depending on the varieties, from 25% to 50%. 25% applies to a mortgage, and 50% applies to everything else. This approach allows us to assess the ability of any banking organization to fulfill its own obligations to customers and helps to stabilize the economic situation.
What is included in VLA-1?
Highly liquid assets of the first level include checks, cash currency, funds in the accounts of branches. This also includes amounts deposited on the accounts of the Bank of Russia and relevant state organizations of other countries, as well as securities of various types if they fulfill all the above requirements or are property. It should be noted that various debt securities can also act as a highly liquid asset, but only if they were issued by countries with a rating of 0 or 1. If this indicator is at a lower level, then such securities will transfer to the second level of VLA .
What is included in VLA-2?
Highly liquid assets of the second level, as mentioned above, are divided into two subgroups. The first "A". It includes debt securities, which were issued by countries with a rating of 2, and mortgage-backed bonds issued by banks. It should be noted that these elements can only be taken into account if the depreciation rate is less than 10%. The second group is “B”.This also includes mortgage-backed bonds issued by legal entities that are not residents, as well as common shares. The depreciation rate should not exceed 20%. Given all of the above, highly liquid assets in the bank's balance sheet are the most effective elements that can be converted into cash very quickly, which ensures a high level of fulfillment of the obligations of this particular financial institution to its customers and creditors.
Liquidity management
In order for this element of the bank to be at a high level, it is necessary to manage it on an ongoing basis. For this, there are special standards for calculating instant, current and long-term liquidity, which allow you to evaluate the whole situation. Controlling this is a very difficult process, since it can be influenced by a huge number of various factors, the existence of which the analyst may not even suspect. It is for the fact that all the same to receive at least approximate information, and the above standards are used. The calculation of instant liquidity implies the possibility of fulfilling the obligations of the bank to its customers in the context of one operating day. The amount of such assets must be sufficient to match the current level of liabilities. The current liquidity calculation standard is used to limit the bank’s capabilities regarding the loss of this element within 30 days, and long-term accounting is responsible for the same indicator, but for a period of 365 days. This approach allows you to control the current situation, as well as have at least a rough forecast for a sufficiently long period of time.
Features
In accordance with current legislation, if highly liquid assets cease to meet certain requirements listed above, they can still participate in the calculation, but for no more than 30 days. It is also necessary to remember that the total number of VLA-2 should not be higher than 40% of the total amount, and its subspecies VLA-2B should not exceed 15%. The liquidity level is regulated by each bank independently, based on the developed internal documents. Nevertheless, any actions in this direction should not violate the law and go beyond the framework established at the state level. This approach allows various financial institutions to develop their own liquidity control methodology, which will be optimal for them.
Summary
In general, based on the information proposed above, it can be concluded that the bank’s highly liquid assets are clearly regulated by both the bank and the state, the sum of elements of various types, which are combined only by the fact that they can be at any time and in short the terms are turned into cash without any problems or obstacles both from the side of the government, and from other financial structures or international organizations.
