First, they acquire liquidity so they automatically liquidate themselves.
Second, as they mature in the short run and are for productive ambitions, there is no risk of their running to bad debts.
If there is depression, production and trade deteriorate and the debtor fails to repay the debt at maturity.
The commercial loan or the real bills doctrine theory states that a commercial bank should forward only short-term self-liquidating productive loans to business organizations.
Loans meant to finance the production, and evolution of goods through the successive phases of production, storage, transportation, and distribution are considered as self-liquidating loans.
Fourth, the general demerit of this theory is that no loan is self-liquidating.
A loan given to a retailer is not self-liquidating if the items purchased are not sold to consumers and stay with the retailer.
But in general circumstances when all banks require liquidity, the shiftability theory need all banks to acquire such assets which can be shifted on to the central bank which is the lender of the last resort.
The shiftability theory has positive elements of truth.This theory states that, for an asset to be perfectly shiftable, it must be directly transferable without any loss of capital loss when there is a need for liquidity.This is specifically used for short term market investments, like treasury bills and bills of exchange which can be directly sold whenever there is a need to raise funds by banks.A term-loan is for a period exceeding one year and extending to a period less than five years.It is admitted against the hypothecation (pledge as security) of machinery, stock and even immovable property.When business went down and the requirements of trade declined, the volume of rediscounting of bills would fall, the supply of bank reserves and the amount of bank credit and money would also contract.