Contingent Liquidity Risk

Contingent liquidity risk refers to the possibility that a financial institution might struggle to access cash in certain unforeseen situations, like sudden market disruptions or unexpected demands for funds. This can occur even if the institution is generally considered liquid. Effective liquidity risk management involves preparing for these scenarios by maintaining reserves, having access to credit lines, or creating contingency plans to ensure that cash is available when needed. Essentially, it's about being ready for the unexpected to prevent financial strain.