The risk (a form of basis risk) that is caused by unanticipated losses or costs arising from a mismatch between asset yields and funding costs of corresponding liabilities. Funding risk results from many reasons including different maturities of assets and liabilities, unfavorable changes in credit quality of financial assets and liabilities, etc.
In another context, funding risk may imply a situation where an entity is unable to meet cash or collateral requirements for a position, and as a consequence it would be forced to terminate/ liquidate the position prior to its maturity date (and commonly, under unfavorable conditions).
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