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42
In general, in
Bills may or may not be a liquid asset.
Palestine, they are not, although if the holding Bank has a
rediscounting arrangement with a stronger Bank they may be
regarded as moderately liquid assets; in times of abnormal
financial stress, however, bills in Palestine tend to become
"frozen". Balances with other Banks provided the Banks
are of first-class standing may be regarded as liquid assets,
but even such balances if the financial pressure is very
great unless in the hands of Banks of world-wide activity and
standing cannot be regarded as entirely liquid. Foreign
Bank notes may be satisfactory liquid assets in certain
circumstances; but this largely depends on the stability
of currencies. The same considerations apply to balances
with foreign correspondents.
31. In the present state of the country's economic
development and of its banking system we feel that no
satisfactory definition of liquid assets can be laid down by
Law. Any definition which we might recommend would, we
feel, be arbitrary. We also think that to fix by Law a
minimum proportion of liquid assets to deposits would be
arbitrary and would raise the cost of credit with the local
Banks which would consequently be exposed to undue
competition on the part of foreign Banks.
32. As far as foreign Banks are concerned our
deliberations brought us to the conclusion that any attempt
to fix minimum reserves or any ratio of liquidity could
not operate in the case of the local branches of foreign
Banks. Some or all of those branches may be subject to
certain internal rules as to minimum cash reserves which
they must hold but they do not, of course, in case of
emergency, look to their own specific investments for
satisfying the needs of their depositors. It is in the
nature