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34 Bank of Montreal Group of Companies 1999 Annual Report
Liquidity Ratio
Liquidity Ratio of 29.2%
Our policy is to maintain sufficient funds and funding capacity to meet our net cash
outflow commitments, such that in the event of a liquidity crisis our commitments
would be covered, without having to raise funds at unreasonable prices or sell assets
on a forced basis. This is achieved by maintaining adequate liquid assets and ensuring
the stability of our deposit base through diversification.
Our liquidity ratio at October 31, 1999 was 29.2% compared to 28.4% at October 31,
1998. The increase was primarily the result of growth in U.S. money market place-
ments, with total liquid assets at October 31, 1999 being $67.3 billion.
Our secondary measure of liquidity is core deposits as a percentage of total deposits
(c
ore deposits are defined for this purpose as retail deposits). Core deposits as a per-
centage of total deposits decreased slightly from 41.4% to 38.9%, reflecting greater
growth in overall assets than growth in core deposits.
We maintain broad diversification of deposits by client and type as shown in the
charts below.
In the ordinary course of business, to support our trading activities and our partici-
pation in clearing and payment systems both domestically and abroad, a por
tion of
liquid assets is pledged as collateral. At October 31, 1999, $39.9 billion of assets
and
securities had been pledged. This amount is down $1.6 billion from last year, and is
included in our liquidity analysis.
Further discussion of liquidity risk management is provided on page 41.
1998 Compared to 1997
At October 31, 1998, our liquidity ratio was 28.4%, down from 35.6% the preceding
year. This decrease resulted from continued growth of Canadian dollar loans such as
residential mortgages, and the reduction of our liquid assets by $10.8 billion, or 14.6%,
as part of our portfolio management.
Outlook
We expect the liquidity ratio in 2000 to remain in the same range as in 1999.
Measure:
The liquidity ratio is our primary
measure of liquidity coverage
and represents the ratio of
deposits with other banks, other
cash resources and securities
(liquid assets) to total assets. It
allows us to ensure we have
sufficient liquid resources to
meet client requirements and
our own operating needs.
63.2
74.0
60.8
53.3
67.3
Liquidity Ratio
99
98979695
28.4
35.6
35.8
35.1 29.2
Securities ($ billions)
Deposits with other banks and
other cash resources ($ billions)
Cash and securities-to-total
assets (%)
Banks
Business/Governments
Individuals
(%)
19.4
38.9
41.7
Deposits by Client
Term
Demand
Notice
(%)
22.6
10.4
67.0
Deposits by Type
Note: For more information see Table17 on page 70.