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Liquidity to a bank is a little bit like health to an individual. Figuratively speaking, if a bank has poor liquidity, then it is likely that they will be in the intensive care ward; in other words insolvent. Liquidity literally refers to the speed in which an asset can be converted into cash. When a company or bank considers putting its' money into liquid assets, it means investing money in money market securities, short term CDs or a savings account held at a bank. For banks, this is an account held at the central bank. A bank's investment earnings can be severely affected if they hold too many liquid assets, as the more liquid the asset, the lower the yield tends to be. Some assets that should not be considered as liquid are bonds （including State bonds）, mutual funds, stocks and insurance policies. |
