Large Bank Examination Workshop February 2026

Liquidity vs. Liquidity Risk • Liquidity risk is the risk that an institution’s financial condition or overall safety and soundness is adversely affected by an inability (or perceived inability) to meet its obligations. An institution’s obligations, and the funding sources used to meet them, depend significantly on its business mix, balance-sheet structure, and the cash flow profiles of its on- and off-balance-sheet obligations. Source: Interagency Policy Statement on Funding and Liquidity Risk Management – March 17, 2010

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Liquidity vs. Liquidity Risk (con’t) In managing their cash flows, institutions confront various situations that can give rise to increased liquidity risk. These include funding mismatches, market constraints on the ability to convert assets into cash or in accessing sources of funds (i.e., market liquidity), and contingent liquidity events. Changes in economic conditions or exposure to credit, market, operation, legal, and reputation risks also can affect an institution’s liquidity risk profile and should be considered in the assessment of liquidity and asset/liability management.

Source: Interagency Policy Statement on Funding and Liquidity Risk Management – March 17, 2010

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© Global Financial Markets Institute Inc.

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