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So when we think of multi-billion dollar cash transactions such as cash-based M&A deals, large real-estate projects ,etc. how are these transactions executed?

Is it similar to me using my checking account to buy groceries and 'cash' electronically flowing into the selling party (although, in larger sizes)?

If so, do banks really hold enough cash to make those transfers?

Thanks.

closed as off-topic by Dheer, Pete B., Nathan L, BobbyScon, Joe Jun 20 '18 at 22:05

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  • "Questions about accounting are off-topic unless they relate directly to personal finance or investing from an individual's perspective." – Dheer, Pete B.
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  • WHy do you think banks need to hold CASH - they transfer money between accounts. None of those tranasactiosn are CASH transactions as in involing physical currency. They are all accounting currency. – TomTom Jun 20 '18 at 6:31
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    I'm voting to close this question as off-topic because it's not about personal finance – Nathan L Jun 20 '18 at 14:16
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Cash in that context means money in something like a checking account. It is always an electronic transfer; not physical currency.

'Cash' is used as term so differentiate from 'non-cash' transactions, where the payment happens in shares, options, bonds, IP rights transfer, or other valuables.
No bank has or needs to have these amount in physical currency; it is just a number in a computer.

  • So with that in mind, do large banks usually have enough liquidity to afford those 'cash' transactions even when deal sizes go over several billions of dollars? – Chanseok Oh Jun 20 '18 at 2:42
  • It's the question of the company that has the account - for example, does Apple have 500 Million in their 'checking account' to pay such a deal? If they have, then the bank has it too, as the account is with the bank, and it got there somehow. The bank doesn't need to have anything, they just submit a one-liner transaction over the internet with the amount in it. – Aganju Jun 20 '18 at 2:43
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    @Aganju This seems to assume that banks hold all deposits rather than using them to make long-term loans. I thought the question might refer to the idea that with fractional reserve banking, the bank doesn't actually have "cash equivalents" equal to the total amount on deposit, which is why a sudden withdrawal of a significant portion of total deposits can put the bank's solvency at risk and trigger a bank run. If a company spends most of its checking balance on a deal and is one of its bank's biggest depositors, could this exceed the bank's own liquidity? – nanoman Jun 20 '18 at 4:00
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    @nanoman "could this exceed the bank's own liquidity?" Yes, but there are approaches to handle that. If the bank knows about the transaction ahead of time, they can sell off the underlying loans or other assets (e.g. bonds). And of course the bank can borrow from other banks or in a real emergency from the Federal Reserve. Or the bank can ask the recipient to open an account with the bank and keep the money in the same bank. Beyond that, it may be investment banks with different reserve requirements. – Brythan Jun 20 '18 at 5:03
  • @nanoman Every day trillions of dollars move between large banks. Large institutions at times hold cash in current accounts in hundreds of millions ... more often these are parked in cash markets. Most of the times corporate also park funds in notice deposit accounts are required to give notice [30 days, 100 days, etc] to bank before they can withdraw funds above the designated limits – Dheer Jun 20 '18 at 8:00

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