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In banking, Shiftability is an approach to keep banks liquid by supporting the shifting of assets.
When a bank is short of ready money, it is able to sell orrepo its assets to a more liquid bank. The
approach lets the system of banks run more efficiently: with fewer reserves or investing in long-term
assets.Note that shiftability is a property of the banking system, not an individual bank. Individual
banks have always handled Liquidity crises by attempting to sell or repo assets. In many banking
systems, they do so only at fire sale prices. Under shiftability, the banking system tries to avoid
liquidity crises by enabling banks to always sell or repo at good prices.Shiftability allowed early
American banks to stay liquid when investing in longer-terms investments, like railroad construction,
when British banks were only invested in short-term commercial paper.
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SHIFTABILITY THEORY OF LIQUIDITY
An explanation of bank liquidity that holds that a banks capacity to meet liquidity demands is related
to the volume of its assets that can be readily shifted to another bank.