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

  • Bank profitability
    Bank profitability is an important indicator of bank performance, it represents the rate of return a bank has been able to generate from
  • Reverse causation
    Reverse causation is a situation in which one variable is said to cause another variable, when in reality the reverse is true.
  • Debenture
    Debenture is an instrument for raising long-term debt. Debentures in India are typically secured by tangible assets.
  • Dirty float
    Dirty float is an exchange rate regime in which countries attempt to influence their exchange rates by buying and selling currencies (also called a managed float).
  • Human Resources Managers
    A bank’s performance in serving the public and its owners depends, more than anything else, on the talent, training, and dedication...
  • Deposit facility
    Deposit facility is The European Central Banks standing facility in which banks are paid a fixed interest rate 100 basis points below the target financing rate.
  • Triangular arbitrage
    Triangular arbitrage in which currency transactions are conducted in the spot market to capitalize .....