Liquidity Day 3: The Different Types of Liquidity Risk Banks Must Manage
25 January 2026·16 min
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In this session of the Liquidity Management course from The Industry Portal, we move beyond history and focus on the nature of liquidity risk itself. This lesson provides a clear, structured breakdown of the different types of liquidity risk that banks face and explains how these risks emerge, interact, and intensify during periods of stress.
You will gain a practical understanding of funding liquidity risk and market liquidity risk, the two most widely discussed categories in banking. We explain how maturity mismatches arise, why banks borrow short and lend long, and how confidence shocks or frozen markets can quickly turn a manageable position into a full liquidity crisis.
The session then goes further by covering less discussed but critically important risks. These include contingent liquidity risk, where off balance sheet commitments such as undrawn credit lines, guarantees, and derivatives collateral can suddenly become real cash demands. We also explore intraday liquidity risk, explaining why payment timing matters, how settlement systems work, and why even short lived liquidity shortfalls can have serious consequences.
You will also learn about structural liquidity risk and how a bank’s long term funding model, concentration of funding sources, currency exposures, and reliance on short term markets can create hidden vulnerabilities that build over time. We introduce the role of the Net Stable Funding Ratio in addressing these structural risks and explain why short term compliance alone is not enough.
This session shows how banks identify, measure, and monitor liquidity risk in practice. We cover cash flow forecasting, maturity ladders, liquidity buffers, asset liquidity assessments, stress testing assumptions, and real time monitoring tools. You will also gain insight into governance, including the role of Treasury, Risk, ALCOs, and senior management in managing liquidity across different time horizons.
Regulatory expectations are woven throughout the session, including how liquidity risk categories map to frameworks such as the Liquidity Coverage Ratio, Net Stable Funding Ratio, and the Internal Liquidity Adequacy Assessment Process. The focus is not just on rules, but on how liquidity risk is embedded into day to day decision making and long term strategy.
By the end of this video, you will have a clear mental map of liquidity risk in all its forms and understand why effective liquidity management requires a comprehensive, forward looking approach. This session lays the foundation for the next part of the course, where we examine how banks organise their teams, governance, systems, and data to manage liquidity in real time
Keywords
liquidity risk, liquidity management, funding liquidity risk, market liquidity risk, contingent liquidity risk, intraday liquidity, structural liquidity risk, treasury, banking risk management, lcr, nsfr, ilaap, bank liquidity, finance course, industry portal
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