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The treasury department of a bank is responsible for balancing and managing the daily cash flow and liquidity of funds within the bank. The department also handles the bank's investments in securities, foreign exchange and cash instruments.
Net Cash Flow
The treasury department must ensure that the bank has enough liquidity--readily available cash--to cover its net cash payments. Cash payments represent checks and wire transfers drawn on customer accounts. These payments are offset by funds coming into the bank from customer deposits and incoming wire transfers. The daily net liquidity is managed by either buying money to cover deficits or selling money to other banks for cash flow overages.
The treasury department is responsible for the evaluation, safety and profitability of the bank's investment portfolio derived from excess funds not used for the origination of customer loans. These investments range from overnight funds placed with other banks to longer term U.S. Treasury Bonds.
The treasury department manages investment assets and liquidity risk by matching them against the deposit side of the bank. The combined flow of funds and interest rates from loans and investments must exceed that of deposits for each time period analyzed.