AP MacroeconomicsMoney, Banking & Finance
Liquidity Risk
Liquidity risk is the risk of being unable to meet cash obligations on time, either because assets can't be sold quickly or funding dries up.
For a bank, liquidity risk arises from maturity transformation: deposits can be withdrawn instantly while loans are locked up long-term, so a surge of withdrawals can leave the bank short of cash even if it is solvent. This is what turns a loss of confidence into a bank run. It differs from credit risk (default) and interest-rate risk (rate moves).