Excess liquidity and surplus liquidity
The amount of cash held by an individual bank in excess of the usual requirement in its day-to-day operations. – Total by which banks’ balances with the central bank exceed the overall liquidity requirements of the banking system. The liquidity requirements of the banking system are composed of the reserve requirement and autonomous factors (autonomous factors: issues that affect temporarily the demand for liquidity and which are normally beyond the scope of influence of institutions: unexpected withdrawals for cash from their clients, for instance). – Inflows into the banking system exceed the liquidity outflows caused by central bank measures. This is usually reflected in holdings of reserves by banks at the central bank that exceed the minimum reserve requirement (cash flows into the banking system persistently exceed withdrawals of liquidity from the market by the central bank. This is reflected in holdings of reserves in excess of the central bank’s required reserves). – The actual money supply in a currency area in relation to a calculated equilibrium level (the deviation of the actual stock of money from an estimated equilibrium level). – The money supply expands faster than the gross domestic product (if money supply expands faster than nominal gross domestic product, excess liquidity will be created. In other words, excess liquidity in this definition is the percentage year-on-year money supply growth minus the percentage year-on-year growth in nominal GDP). – The stock of money that has not yet been absorbed by volume or price increases. – See money gap, liquidity factors, autonomous portfolio shifts, underbidding. – Cf. Deutsche Bundesbank Monthly Bulletin of August 2014, p. 35 (Course of interest rates, money market rates and excess liquidity in the euro area), Deutsche Bundesbank Monthly Bulletin of November 2014, pp. 33 f. (Excess liquidity and short-term money market rates in the euro area since 2004; overviews).
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
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