1. Interest rate risk.
Pipeline risk is a form of interest rate risk for a financial institution.
It arises from making advertisements for fixed interest rate products, for example mortgage loans or deposits.
Whilst neither the financial institution nor the customer is contractually committed, the financial institution may consider its advertisement to be binding for reputational or other reasons.
The financial institution therefore has an interest rate exposure for the - as yet unknown - takeup of its advertised fixed interest rate product.
2. Liquidity risk.
In relation to liability products such as mortgages, pipeline risk also presents a liquidity risk.
The - as yet unknown - number of mortgage loans will need to be funded.