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Liquidity and treasury

Liquidity risk

The risk that a bank cannot meet its obligations as they fall due without taking unacceptable losses.

Liquidity risk has two faces. Funding liquidity risk is the risk of being unable to raise cash to meet outflows. Market liquidity risk is the risk of being unable to sell an asset quickly without moving its price against you.

Banks manage it with liquid asset buffers, diversified funding, limits on maturity mismatch and regular stress testing. The LCR and NSFR are the regulatory backstops.

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