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LIQUIDITY RISK MANAGEMENT
What is liquidity risk in the context of banking?
Liquidity risk is the risk that a bank cannot meet its financial obligations as they fall due without incurring unacceptable losses, arising from mismatches between asset maturities and liability maturities.
What is the primary objective of liquidity risk management in banks?
Ensure bank can meet all payment obligations on time without distress.
What are the two main types of liquidity risk faced by banks?
The two main types are funding liquidity risk (inability to raise funds to meet obligations) and market liquidity risk (inability to liquidate assets quickly without significant price concession).
What is a liquidity buffer and why do banks maintain it?
Reserve of liquid assets held to absorb sudden liquidity shocks.
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