Bank of Montreal 1997 Annual Report Download - page 56

Bank of Montreal 180th Annual Report 199750
Management Strategy
To maintain sufficient cash resources to meet customer
requirements.
Process Overview
Liquidity management is necessary to ensure that we can
generate or obtain cash at a reasonable price in order to
satisfy our broad range of customer cash needs as well as
our own operating needs. We actively measure and forecast
liquidity requirements based on historical, current and
projected cash flow trends. We also run sensitivity analyses
to determine the impact of withdrawal propensity factors
and commitment drawdown factors, as well as changing
business environments, on funding requirements. These
analyses enable us to monitor changes in liquidity and
react in a timely and appropriate manner.
We have three primary deposit sources of funds that we
use to provide liquidity: retail deposits, wholesale deposits,
and the capital markets.
Our large base of deposits by individuals provides a
strong source of funding
in both Canadian and
U.S. dollar markets. These
deposits, along with our
strong capital base, reduce
any reliance on other more
volatile sources of funds.
The deposit portfolio char-
acteristics in 1997 continued
to be broadly diversified by
customer, type and currency.
Our wholesale funding activities are performed by
professional teams situated in several key financial markets
worldwide, and are subject to stringent liability diversi-
fication policies, the objectives of which are to:
•maintain a funding capability in all major markets;
•maintain a diversified deposit base so as to avoid depen-
dency on any one type or group of depositors;
•ensure that our long-term funding and stability needs are
a priority over short-term profit opportunities; and
•satisfy shareholders’ and regulators’ requirements for
prudent financial management.
To complement day-to-day cash management activities,
we access capital markets for medium- to long-term funds
as required and when market opportunities permit. This
activity generally involves funds which are two to ten years
in term.
We continue to play an active role in the capital markets
not only to enhance diversification but to take advantage of
opportunities for the most cost-efficient source of funding.
Demand
Notice
Term
Deposits by Type (%)
Balances as at October 31, 1997
21.1
68.5
10.4
International
Domestic
Deposits by Currency (%)
Balances as at October 31, 1997
49.6
50.4
Businesses/Governments
Banks
Individuals
Deposits by Customer (%)
Balances as at October 31, 1997
40.2
21.7
38.1
Liquidity Management
Results
Total liquid assets as at October 31, 1997 increased by
$13.2 billion or 21.8% from 1996. The liquidity ratio, as
defined above, decreased from 35.8% in 1996 to 35.6% in
1997. The increase in total assets was attributable to
growth in most loan categories, with the exception of credit
cards due to the credit card securitization discussed on
page 48. The decrease in the
liquidity ratio was partly
the result of opportunities
for high-quality non-liquid
assets which were taken
throughout the year.
Total liquid assets in 1996 increased by $7.5 billion or
14% from 1995. Most of the increase was in securities.
Measure:
The liquidity ratio is our primary
measure for liquidity coverage
and represents the ratio of cash,
securities and deposits with
other banks (liquid assets) to
total assets.
Liquidity ($ millions except as noted)
As at October 31 1997 1996 1995 1994 1993
Cash resources 2,189 2,742 897 840 1,843
Securities 41,789 36,609 33,019 26,535 23,328
Deposits with other banks 30,056 21,445 19,420 13,819 10,238
Total liquid assets 74,034 60,796 53,336 41,194 35,409
Total liquid assets-
to-total assets
(%) 35.6 35.8 35.1 29.8 30.3
Total deposits 144,212 119,262 109,605 98,241 87,859
Note: For more information see Tables 17 and 18 on page 63.
35,409
30.3
53,336
35.1
41,194
29.8
60,796
35.8
74,034
35.6
Securities
Cash Resources & Deposits with Other Banks
Liquid Assets-to-Total Assets
($ millions)
9796959493
Cash and Securities-to-Total Assets
(%)