Definition Of

Self-liquidating theory

Self liquidating (real bills doctrine) theory is a traditional and conservative banking theory. The main theme of this theory is that the earning asset of a bank should be limited to short-term self liquidating productive loans that include self liquidating commercial paper or short term loan intended to provide the current working capital, which in itself is of a self liquidating nature. The advantage of the ‘self-liquidating theory’ of commercial bank asset is mainly derived from the fact that such loans are considered to liquidate themselves automatically out of the sale of goods covered by such a transaction.

Share it:

More from this Section

  • Indemnity
    Indemnity is a principle that says when a loss occurs, the insured and his vehicle should be restored to the condition they were in before the
  • Counter purchase
    Counter purchase refers to exchange of goods between two parties under two distinct contracts expressed in monetary terms.
  • Yield to maturity
    Yield to maturity refers to the rate of interest (discount) that equates future cash flows of a bond, both interest and principal, with the present market ...
  • Bid/Bond Guarantee
    Bid/Bond Guarantee is a guarantee issued by a bank on behalf of a seller to a buyer to support the sellers’ bid or tender for a contract. If the
  • Excess demand
    Excess demand is a situation in which quantity demanded is greater than quantity supplied.
  • Any-part-of order
    Any-part-of order is an in context of general equities, order to buy or sell a quantity of stock in pieces if necessary. Antithesis of an
  • Double indemnity
    Double indemnity is a feature that guarantees that twice the face value of a life insurance policy will be paid if the insured dies accidentally.