Bank liquidity risk Essay Example | Topics and Well Written Essays - 1250 words

Bank liquidity risk - Essay ExampleThe ability of the fiscal firm to meet its debts requirement without suffering large losses is known as liquidity (Drig & Adela, p.46-55). Financial firms must, therefore, maintain a liquidity management carcass to assess their respective funding needs and to ensure funds are available at the appropriate sentence. This paper aims at analyzing the liquidity risks by considering its measures and its family with the bank stock returns.The historical episodes of the financial and scotch woes of the 2007-8 have been highlighted and critical to the funding of the liquidity for banking crises. It created unforgettable mark of the funding liquidity crisis when the interbank markets collapsed and the central banks in the world had to intervene in the monetary processes (markets) at unwarranted levels (Drig & Adela, p.46-55). The situation led to the realization of the gap through development of measures based on the banks bids in open market operations. The measure to the liquidity risk helps in assessing the interactions of the market liquidity and the funding liquidity risk that are key concerns to most economic policy makers.According to Hull (2012), funding liquidity is the ability to settle immediate financial needs of a firm. Conversely, a bank becomes illiquid in the force that it is unable to meet its financial risk on time. In this case, therefore, it is paramount to realize that funding liquidity risk for the bank is driven by the opening that a bank may find itself at a position where it is unable to settle its financial obligations on the due time. Funding liquidity depends on the risks magnitude and is an instant concept as the risk is a future-oriented concept. In the bank operations, illiquidity and liquidity is a reality, and the likelihood of either is a function of the time and nature of the funding position of the bank. Thus, the concerns of