Funding liquidity risk

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The risk of an organisation's inability to obtain funds to meet its own obligations.

Contrasted with, though also overlapping, market liquidity risk.

2. Banking

In relation to banks, funding liquidity risk is the risk that a bank does not have sufficient cash or collateral to make payments to its counterparties and customers as they fall due (or can only do so by liquidating assets at excessive cost).

In this case the bank has defaulted.

This is sometimes referred to as the bank having become ‘cash flow insolvent’.

See also