Structural Liquidity Risk

Structural liquidity risk refers to the potential difficulty a financial institution may face in meeting its long-term obligations due to the mismatch between its assets and liabilities. This risk arises when an institution has long-term assets, like loans or investments, that cannot be quickly converted to cash, while its liabilities, such as deposits or loans, may need to be repaid sooner. Effective liquidity risk management involves ensuring that the institution can maintain enough cash or liquid assets to meet its obligations without incurring significant losses, even in challenging market conditions.