It is clear that liquidity risk is almost always accompanied by a banking business

To increase the liquidity risk affect both the external (system wide) and internal factors. For system-wide factors are such as underdeveloped financial markets, the lack of liquid markets for individual assets, making it difficult to sell them at a reasonable price in the short term, the general economic crisis, which makes it impossible to smoothly raise funds, etc. Among the factors increasing the risk of liquidity associated with the activities of a particular bank - such as cash flow imbalance caused by the discrepancy between the structure of claims and liabilities of the bank; lack of liquid assets, volatility of the resource base, low rating of the bank; wrong strategy of liquidity management (for example, the priority of return of liquidity). Practice shows that a lack of liquidity is often the first sign of the presence of a bank in serious financial difficulties. In such a situation usually begins churn and closing of accounts, which in turn leads to increased need for liquidity and deepening liquidity crisis. Banks are forced to seek sources of revenue for cash by selling the most liquid assets and borrowing in the market. Under such circumstances, the undertaking of such operations is complicated, because the lenders very reluctant to lend to the bank, which is on the verge of bankruptcy, requiring additional collateral and higher interest rates, and the sale of assets may be under adverse market conditions. This leads to a reduction in income, additional costs and the rapid growth of financial difficulties. The development of modern financial markets can reduce liquidity risk, interest rate risk when the bank, by contrast, is growing. Therefore, in the management of bank liquidity, should pay special attention to the cost of maintaining the liquidity position. The problem of maintaining liquidity is transformed into the problem of managing costs and interest rate risk of the bank. Category: Management Operations Commercial Bank | Tags: liquidity risk