Self liquidating paper theory
The repayment schedule and maturity of a self-liquidating loan are designed to coincide with the timing of the assets' income generation.
Non-deposit borrowing (fed funds, discount window, notes and debentures, etc) 5.
There are also a number of scams that call themselves "self-liquidating loans".
There are probable contradictions between the objectives of liquidity, safety and profitability when linked to a commercial bank.
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.