Factors of demand for liquidity of the banking system in Ukraine

The demand for liquidity is formed by the total size of the mandatory reserve requirements that are stored in bank accounts at the central bank, and the free liquidity (money in bank accounts at the central bank, with the exception of funds formed by the mandatory reserve requirements). That is to quantify the liquidity of the domestic banking system depends on the amount of banks' correspondent accounts with the National Bank of Ukraine (see Figure 1). The object of regulation for the central bank's liquidity is a free (free reserves) of the banking system, which can contain both optimal and redundant components, and in individual banks in liquidity crisis can be absent. In the balance of the central bank the amount of free liquidity will be negligible if the liquidity position of the banking system is characterized by a structural deficit, and vice versa - the amount of free reserves would be significant for the structural excess liquidity. As seen in Figure 1 in the last two years the lowest level of liquidity was observed on November 1, 2008: free reserves exceeded the level of compulsory reserve requirements only by 17.1% compared to 87.4% at 01.10.2008, while reducing by 9.1 billion UAH. This situation indicates a change in Ukraine structural position surplus liquidity in the banking system, its structural deficit due to the global financial crisis, which exacerbated the problems that have accumulated in the domestic banking system. Category: Liquidity of the banking system of Ukraine | Tags: Demand factors