A type of liquidity risk that relates to cash flows or funding liquidity. It reflects the possibility that an entity may fail to meet (i.e., fund) its liabilities, particularly short-term financial obligations when due. For a bank, it is the risk that it will not meet the demand of its customers seeking to withdraw their deposits, over a specific time horizon.
This risk arises when outflows exceed inflows at a certain point in time. It is typically determined by the net liquidity demand and the cost of securing liquidity from different sources.
It is also known as a funding liquidity risk.
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