The essential goal behind the decision making policies of a bank is to capitalize on the wealth of the bank’s shareholders. At times, there are some managers in the banks that make decisions that are in their own best interest as to oppose to the shareholders interest. For instance, decisions that affect the growth of the bank may be proposed to raise employees salaries, where as larger banks have the tendency to provide more employee compensation. Also, “the compensation to a bank’s loan officers may be linked to loan volume, which encourages a loan department to extend loans without concern about any risk.” (Madura, 2008) “As these examples suggest, banks can incur agency costs, or costs resulting from managers increasing their own wealth as to oppose to the shareholders wealth.” (Madura, 2008) For banks to prevent these types of agency problems, a few banks give stock as compensation to managers. With those types of managers they normally will make sure to maximize the shareholders wealth because they are also shareholders. If any of the decisions made by the manager are conflicting with the goal of maximizing the shareholders wealth, the share price will not be able to attain its highest.
The board of directors are either appointed or elected to act as, representatives of the stockholders to institute corporate management related policies and to make decisions on major company matters. Some duties include the hiring and firing of executives, dividend policies, options policies and executive compensation. They are the ones who try to make sure that when the managers are making a decision that it is in the best of interest of the shareholders. Some of the more important functions of bank directors are to decide the payroll system for the bank’s executives. They make sure accurate disclosures of the bank’s financial stand point and performance to investors. Not only do they oversee the growth opportunities, but as well as the policies regarding any changes to the capital structure with decisions to raise its capital or to take on in stock repurchases. Every public company must have a board of directors
The term liquidity is often used in multiple circumstances. An asset’s liquidity can be used to describe how quickly, easily and costly it is to convert that asset into cash (Berger & Bouwman, 2008). Liquidity can also be utilized to describe a company by the sum of cash or close to cash assets a company has. The more liquid assets a company may have the higher liquidity. Liquidity risk is the risk stemming from the lack of marketability of an investment that cannot be bought or sold quickly enough to prevent or minimize a loss. If the bank is not able to pay its obligations it can lead the company to face serious financial issues. Additionally, liquidity risk can be as well be defined as the counterparty to a transaction. In this sense the term means the risk inherent in the fact that the counterparty may not be able to pay or settle the transaction even if they are in good financial standing, because of a lack of liquidity (Petria & Petria, 2009).
Interest rate risk is the distinction in time, credit, and rate between an asset and the liability used to fund the asset. In the case of a bank, the primary legal responsibility is its deposit base, the certificates of deposits it distributes and savings accounts, along with other items. Certificates of deposit and savings accounts are interest-rate delicate items for which the bank must be equipped to offer competitive rates. The deposit pool is a function of the magnitude of the depository. Banks are frequently regulating the most favorable number of outstanding liabilities and the maturity structure based on the amount of new loans approved every day. The issue of what structure the maturity of liabilities is absolutely important because the bank has to be prepared for direct line of credit commitments. These are contracts that banks hold not only with individuals but with businesses to prearrange lending as well. These agreements are usually written for a charge payment and its maturity is only one year at a time. The funding is variable draw downs and repayments can only be estimated.
When banks start seeing the slow moving loan demand, upper management will lower their interest rate outlook. Just meaning that the characteristics of the business cycle is changing and that liquidity will be rising and borrowers will want to continue and expand their loan maturities to benefit of the lower rates. On the other hand, when the interest rates do rise it means the loan demand will increase and there would be more customers who need to be accommodated with more money at higher rates. The matter that complicates it is the seasonality loans. During the spring and early summer and before Thanksgiving seasons, the banks are required to keel higher levels of liquidity. Equally, there would be months with lower loan demands because of the result in greater payments of debt. An important factor is that the balance of assets and loan demand and the precise calculation of interest rates will very much influence the earnings of the bank. While banks must meet rigid issues over loan making, liquidity and loan diversification, these issues must be considered against the banking success.

References
Madura, J. (2008). In J. Madura, Financial Markets and Institutions (pp. 499-526). Mason: Cengage Learning.
Berger, A. N., & Bouwman, C. H. (2008, October). Financial Crises and Bank Liquidity Creation. Retrieved March 2010, from Social Science Research Network: http://ssrn.com/abstract=1231562
Petria, N., & Petria, L. (2009). Operational Risk Management and Basel II. Management and Economics , 96-100. http://www.investopedia.com/terms/l/liquidityrisk.asp#ixzz1nzq1LKkz http://www.investopedia.com/terms/b/boardoftrustees.asp#ixzz1oMEFG6RI