Funding Liquidity Risk

Funding liquidity risk refers to the possibility that a financial institution may not be able to meet its short-term financial obligations due to an inability to secure funding. This can happen if they cannot sell assets or if market conditions make borrowing difficult. Essentially, it’s the risk of not having enough cash available when needed, which can lead to operational disruptions or insolvency. Effective liquidity risk management involves ensuring that sufficient cash or liquid assets are available to meet commitments, even in challenging market conditions.