When I was getting my
specialist’s degree in "Finance and credit", it was probably the most
advantageous time for development of new financial universities all over the
world. During the period of 2000-2006 the new prosperity era had begun.
Nevertheless, soon everything became worse.
Being a high school student
I was struck by the situation during the financial crisis in Russia in 1998.
When suddenly everything collapsed, it strikingly turned out that such reliable
institutions as banks and their executives and employers were found so
incompetent (a respectable appearance is obviously not enough). At that time
there was a popular phrase among the lines of defrauded investors: "it's
safetier to put money in a jar than in a bank". Once became an economist,
I understood that it is not the right way, too.
On the third grade I got an idea how to
balance the two main parameters of banks activities (liquidity and solvency).Later
it has embodied into my thesis work. Neither before nor now no one got
interested in that work. Basically this is just a hypothesis, yet I did not
have any bank to check it.
Nowadays, there isn't only the specialists clearly
understand that problems of the global economy haven't been resolved
successfully, but people who just interested in it too. I just will publish my
work, but there are no ideal solutions: everything is relative.
Equilibrium model
by Alexander Abdukarimov
In the bank activities the liquidity and solvency are
of paramount importance, since it is the main indicators which characterized
the activity of every credit organization. These characteristics have very
complex functional connection, fully manifested by the time period. I will not
dwell on describing that, so far as these issues have already been successfully
described, including national experts, for example by Alexander Belyakov.
Certainly, as an ideal can be considered the ratio of these indicators, when
the maximum possible rate of return will be achieved as appropriate to an
acceptable reliability in the current calculations and operations.
To determine such a state of indicators, when the bank
activities will be effective - we have to spot the optimal level of solvency
and liquidity in a particular period of time. By this it means that the
financial resources, which have been involved by credit organization, must
"work" that at first to provide compensation of depositors of the
bank, at second to cover the costs of its activities and create the potential
for further development. The impact of the "working" assets of the
bank is exactly what determines its economic substance as a participant of
economic relations. Along with it, the specific of activity consisting in the
capital structure and the special importance and fragility of the credit organization's
reputation as a reliable and stable market participant determines the need for
the ability of the bank which is called liquidity.
All the existing methods of analysis of credit
organizations are based on the definition of indicators, where the main
criteria are the limits or acceptable intervals. In my opinion, such an
appraisal is not able to properly take into account the diversity of bank
activities which is imposes significant difference to the credit organizations.
At the same time the dynamics of the development minimizes the possibility of
recurrence of situations. But the main drawback is that a huge reserve remains,
plus the uncertainty of what should be its main characteristics in a certain
time period for each specific credit organization (solvency and liquidity).
The heart of the presented model in this essay is in
searching (approximation) such a proportion between banking parameters of a
single bank in each particular situation at which the rate of return and
preserved reliability in the current calculations and operations will be
maximally balanced in order to stabilize the whole system of involving a financial
resources, its allocation, return and re-defined in terms of normal operation of
the banking system.
The meaning of the model consists in the formation and
resolving the bimatrix non-cooperative problem of the theory of games. The
initial parameters of the problem must be defined as follows. In prediction the situation’s development,
in our case in the credit organization, in a certain period of time in the
future, we can assume two possible scenarios: an optimistic and a pessimistic
one. It is necessary to follow to the
most likely options for the development of the situation. Thereby, by setting
the upper and lower bounds, we create the two strategies (solvency and
liquidity) for both scenarios. Each strategy is the priority of one over the
other characteristics. Namely, under an advantageous scenario for solvency strategy, we
will strive to achieve the maximum value of this characteristic, and
accordingly, for the second strategy, the preference will be given to
liquidity. Analogically for the
pessimistic scenario, but just the opposite. Speaking about the maximum
possible level I mean that the level of characteristic which is according to
the chosen strategy will be considered as non-priority: 1)will provide the
appropriate capability and/or 2) will not be lower than the limit values, settled by the
supervisory authorities.In other words, by increasing the solvency, we will
save as much as possible of liquidity, and vice versa. Thus, by using in each
of the scenarios both strategies, we will create the field, which is limiting the
maximum and minimum changes in indicators of the liquidity and solvency in a
positive and a negative case scenario.
The matrix located below illustrates the task's conditions, described
above, where the first line is the strategy of solvency, the second -
liquidity. The first column is optimistic scenario and other, probably, the
worst development of the situation.
solvency —
max ... min
liquidity
— min ... max
Two matrix are filled, after defined appropriate
indicators. The first contains the value of the indicator of solvency, the
second, accordingly, of liquidity. Solution of the problem is the finding
equilibrium (hence the name of the model), stipulating the most optimal
winnings of players (in our case, liquidity and solvency). Each bimatrix game will
have at least one equilibrium situation according to Nash’s theorem.
The liquidity and solvency alike two players, win-draw
of which is the optimal condition for the bank.
The presented model is designed to solve problems in
achievement of stability a credit organization work, expressed in the optimum
proportion its liquidity and solvency. This model, of course, is at the stage
of development for a certain reason. In addition considered characteristics in
the model, are highly complex, but the existing methods of their definition
diverse and often have significant differences. In terms to the category of
«solvency», undoubtedly, need another method of definition for using in such
models, considering the assets gain. In any case, to confirm or reject my
inferences need further practical learning.
