A type of liquidity that is available (to an entity) as a credit to finance the acquisition of financial assets. It is the liquidity at the hands of a solvent entity that allows it to meet contractual payments in a timely manner. Generally speaking, funding liquidity is the ease with which borrowers can obtain financing from external sources. It may also denote the ability to acquire funds or cash through selling own assets.
For example, funding liquidity defines a bank’s ability to acquire funds by disbursing its assets (held on its balance sheet) to meet (i.e., to fund) short-term financial liabilities.
Comments