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How has the negotiable feature of wholesale CDs improved banks’ ability to manage their liquidity?

How has the negotiable feature of wholesale CDs improved banks’ ability to manage their liquidity?

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Answer #1

Time deposits carry a substantial interest penalty for early withdrawal forfeiting all current interest so this penalty would make them an suitable investment for corporations who are unsure whether the fund will be needed prior to maturity or not.

The bank can also withhold the funds prior to maturity if the bank cannot immediately provide the fund. the ability to resell the commercial deposit to third party without any interest penalty encourage corporate use of wholesale commercial deposits giving banks and other source of fund that can be tapped via a deposit broker.

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