Another important but challenging issue which needs a lot of future re-
search is the ability of the investors in RF TCD to cash their deposits before
maturity. In the United States, the regulation may require charging a stiff
penalty. However, in case of an emergency such as a sudden illness, emer-
gency funds needs, and the like, this penalty can be waived by bank man-
agement. Of course, clients cannot just unilaterally come to the bank to
cash their investments before they mature, because they could cause a run
on the bank that could have very negative repercussions on the bank’s
safety, soundness, and reputation. The difficulty here is in the ability of the
RF bank to keep enough liquidity to pay the premature liquidation demands
of the term depositors while most of the deposits are invested in medium-
and long-term projects. In fact, if any bank fails to meet the demands of its
depositors, the damage done will be serious and irreversible, and it could
mean the closure of such bank. It is important for the RF bank management
to take an active and very closely watched role in assessing liquidity needs
based on experience, contact with the customers, and evaluation of the mar-
kets. In addition, it is recommended that the following steps should be taken
in consideration:
1.Match the maturities of the RF TCD to the loan portfolio, and offer
incentives to invest long term.
2.During the start-up of the RF bank (the first five years), consider financ-
ing projects with maturities ranging between three to twelve months in
the first two years of operation, three months and three years in the fol-
lowing years, and then three months and five years in the following
year. This way, cash will always be available for unexpected withdraw-
als and/or reinvestment.
3.The shareholders of the RF bank should stand ready to meet any run on
the bank deposits by providing additional capital. The additional capi-
tal needs will be continually assessed by the RF bank’s management and
board of directors through continual contact with the shareholders to
assess their ability, capacity, and willingness to meet additional capital
needs. This in itself will make the shareholders, some of whom are also
the managing directors and staff of the RF bank, careful about review-
ing the assets/liabilities management and cash flow projections.
4.Commercial entities and individuals who seek financing from the RF
bank should be required to bank with the RF bank and if possible to
keep a balance on deposit as an investment with the RF bank.The most important factor here isclose and continual contact with
every depositor, investor, and entrepreneur. If these contacts are developed
to reach the level of a big family, then projections about the demands of the
Operating an RF Bank in the United States 351