Cash efficiency for bank branches

Abstract

Bank liquidity management has become a major issue during the financial crisis as liquidity shortages have intensified and have put pressure on banks to diversity and improve their liquidity sources.While a significant strand of the literature concentrates on wholesale liquidity generation and on the alternative to deposit funding, the management of an inventory of cash holdings within the banks’ branches is also a relevant issue as any significant improvement in cash management at the bank distribution channels may have a positive effect in reducing liquidity tensions. In this paper, we propose a simple programme of cash efficiency for the banks’ branches, very easy to implement, which conform to a set of instructions to be imposed from the bank to their branches. This model proves to significantly reduce cash holdings at branches thereby providing efficiency improvements in liquidity management.The methodology we propose is based on the definition of some stochastic processes combined with renewal processes, which capture the random elements of the cash flow, before applying suitable optimization programmes to all the costs involved in cash movements. The classical issue of the Transaction Demand for the Cash and some aspects of Inventory Theory are also present.Mathematics Subject Classification (2000)C02, C60, E50

Sound branch cash management for less: A low-cost forecasting algorithm under uncertain demand

“…The theoretical fundamentals of the proposed algorithm are some notional studies on the cash requirements of branches from their central hubs developed under "the demand for cash" scope (see [6] and [33] for the deterministic model, [27] for the introduction to the stochastic model). These fundamentals were reported by the first author of this paper in [18]. 2 We find that our algorithm performs well across the forecasting of cash amounts that the branch might require from the central hub to satisfy all branch necessities, avoiding having to generate either a surplus or a shortage of cash.…”

“…To the best of the authors' knowledge, for the specific context of bank branches, this only comes to a total of three references: the first one is [10], where authors presented a model aimed at reducing cash management costs in a bank's branch using data mining. Secondly, the work [18] written by the first author of the present paper, where a theoretical model under "the transaction demand for the cash" scope recreates the setting of cash requirements at the branch level. The third reference is a subsequent work, [9] (2014) ( [18] was published on 2013), whose authors apply GA (genetic algorithm) and particle swarm optimization (PSO) in cash balance management using multiple asset investments.…”

“…Secondly, the work [18] written by the first author of the present paper, where a theoretical model under "the transaction demand for the cash" scope recreates the setting of cash requirements at the branch level. The third reference is a subsequent work, [9] (2014) ( [18] was published on 2013), whose authors apply GA (genetic algorithm) and particle swarm optimization (PSO) in cash balance management using multiple asset investments. In a theoretical context very similar to the one developed in [18], the authors minimize the total costs of cash maintenance in order to obtain cash management policies on three assets (cash management and two investments).…”

“…Finally, to facilitate the exposition, the appendix contains the algorithm (daily and weekly) in flowchart form. It should be noticed that the algorithm has been presented in the main text (Section 4) in (pseudo)code with flowcharts in an 2 Since the theoretical method proposed in [18], pointed in the right direction, has resulted in an effective forecasting system for bank branches, a patent has been requested for the paper [18] by the University of Granada, "Method for managing liquidity in bank branches" number ES201431094, United States. 3 Due to the existing difficulties imposed by the EU legislation, both the names of the people and the banks must be kept confidential.…”

Multiple-criteria cash-management policies with particular liquidity terms

“…The Miller & Orr (1966) model was extended by Higson et al (2009) to consider non-stationary cash flow processes following an analytic approach. Another cash management model for banks branches was analytically derived by Cabello (2013) assuming a Poisson process to describe cash demands. This model was later used by Cabello & Lobillo (2017) to propose an algorithm to optimize branch holdings.…”