Summary of Getting a Grip on Liquidity

Paula Tkac

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In attempting to define pornography, Supreme Court Justice Potter Stewart quipped, “I know it when I see it.” In the case of liquidity, the quote would most likely be “I know it when I don’t see it.” Liquidity can mean many things to many people, but all agree that its absence is bad. Economist Paula Tkac thinks it’s time to get a grip on this slippery idea. getAbstract recommends Tkac’s thoughtful introduction and outline of liquidity to financial professionals.

In this summary, you will learn

What liquidity entails,
How different types of liquidity interact and
Why understanding liquidity is still a work in progress.

About the Author

Paula Tkac is a senior economist and vice president of the Federal Reserve Bank of Atlanta.

Summary

Bankers, traders and regulators each have their own definition of “liquidity”: “Institutional liquidity” – This is the capacity of a financial institution to handle short-term mismatches between its assets and liabilities. Banks typically raise short-term funds to make long-term loans...