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Investing and Financial Markets

Are Liquidity Ratios the higher the better?

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June 02, 2009 8:51AM

No. High liquidity ratios may affect the amount of capital that can be invested/used to earn. Let us say in banks, if we increase the liquidity ratio by 10% the bank would have to reduce lending by that 10% to bridge the gap. which in turn would severely affect the banks earnings.