Liquidity risk is the risk to a bank’s earnings and capital arising from its inability to meet obligations when they come due timely. It is also the current and prospective risk to earnings or capital arising from a bank’s inability to meet its obligations when they come due without incurring unacceptable losses. Liquidity risk also stems from the failure to recognize or address changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value
A liquidity risk management framework ensures that the firm is in a position to address its daily liquidity obligations and withstand a period of liquidity stress affecting both secured and unsecured funding, the source of which could be bank-specific or market-wide.
Course model ⓘ: Full Virtual