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- However, the creation of liquidity exposes the bank to a variety of risks, including liquidity risk. This risk can be mitigated to some extent by holding liquid assets such as cash. Cash-asset reserves are not sufficient if depositors withdraw simply because they are afraid that the bank will shut down due to a run by others on its deposits.
academic.oup.com/edited-volume/28123/chapter/212284261Liquidity: How Banks Create it and How it Should be Regulated
Aug 22, 2024 · Effective liquidity risk management involves ensuring the availability of sufficient cash, liquid assets, and accessible borrowing lines to meet both expected and unexpected liquidity needs.
- Will Kenton
The fundamental role of banks typically involves the transfor-mation of liquid deposit liabilities into illiquid assets such as loans; this makes banks inherently vulnerable to liquidity risk. Liquidity-risk management seeks to ensure a bank’s ability to continue to perform this fundamental role.
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Jul 11, 2024 · The researchers study how a liquidity shock to one bank impacted the liquidity positions of other banks before and during the COVID-19 pandemic. They find that this shock transmission, or “spillover,” was stronger during the COVID-19 period than the pre-pandemic period, on average.
Jul 12, 2019 · In particular, in managing the bank's liquid assets, the treasurer considers liquidity risk—the risk that cash is not immediately available when needed—and interest rate risk—in this case, the risk that the value of a liquid asset will change due to a change in interest rates.
May 2, 2024 · Liquidity is how easily an asset or security can be bought or sold in the market, and converted to cash. There are two different types of liquidity risk: Funding liquidity and market...
Introduction...............................................................................................................................1. Principles for the management and supervision of liquidity risk...............................................3.
Banks can increase their liquidity in multiple ways, each of which ordinarily has a cost, including: • Shorten asset maturities • Improve the average liquidity of assets
