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

  • Competitive Equality in Banking Act
    Competitive Equality in Banking Act is the legislation that authorized recapitalization of the Federal Savings and Loan Insurance
  • Reserve maintenance period
    Reserve maintenance period is the according to federal law and regulation, a period of time spanning two weeks, during which a bank
  • Holder in Due Course
    Holder in Due Course is a holder who takes a bill, complete and regular on the face of it, under the following conditions:
  • Short-term
    Short-term with reference to a debt instrument, having maturity of one year or less.
  • Insurance policies
    Insurance policies is the contracts that guarantee payment if the customer dies, becomes disabled, or suffers loss of property or earning power.
  • Equitable tax
    Equitable tax refers to a type of tax that imposes the same total tax burden on all taxpayers who are similarly situated and located in the same tax jurisdiction.
  • Basel Accord
    Basel Accord is an agreement that required that banks hold as capital at least 8% of their risk-weight assets.