The
Definition Of

Shiftability theory

Shiftability theory is developed in 1918 by M.G Mouton and published on his article named ‘Commercial banking and capital formation.

Central theme:

  • Bank must arrange portfolio in such a way that it can have desired liquidity.
  • Most investment is made in secondary money market securities so that liquidity can be achieved at a little/very insignificant amount of loss of value.
  • Here investment money market securities includes, treasury bill, commercial paper and securities issued by reputed companies.
  • Bank can also get cash from central bank in case of difficulty simply by keeping the instruments as security.

The shiftability has reduced the necessity of holding reserve of huge amount of idle cash balance. It has presented an alternative way of real bill doctrine/theory where there is possibility of risk because of economic depression in the case of buying and selling of commercial goods and raw material. With the help of shift ability theory the probability of income can be increased and the probability of risk can be reduced.

Share it:

More from this Section

  • Bond Warrant
    Bond Warrant is the document of title to goods being held in bond storage.
  • Avalisation of a Bill (Aval)
    Avalisation of a Bill (Aval) is a bank’s guarantee to honour payment of a Bill of Exchange. An irrevocable, unconditional promise to pay on the due date.
  • Credit Analysts
    The credit analyst backstops the work of the loan officer by preparing detailed written assessments ...
  • Capital Markets
    Capital Markets are the financial markets in various countries in which various types of long-term debt and/or ownership securities, or claims on those...
  • Variable Expenses
    Variable Expenses Costs of doing business that vary with the volume of business, such as advertising costs, manufacturing costs and bad debts.
  • Problem loan
    Problem loan or classified loan refers those loans that have pushed the bank’s financial position at stake usually due to the fact that, the borrower ...
  • Investment Banking
    A specific division of banking related to the finance of capital for other companies, governments and other entities is known as investment banking.