Funding liquidity
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Funding liquidity is the availability of credit to finance the purchase of financial assets. The International Monetary Fund IMF defines funding liquidity as market liquidity and funding liquidity definition cash ability of a solvent institution to make agreed-upon payments in a timely fashion". Liquidity is the key source of revenue for banks, and can be provided by either depositors or markets.
Examples of fund sources include selling of assets and securities, syndicated loanssecondary market market liquidity and funding liquidity definition cashcapital marketsinter-bank marketand capital by borrowing from a central bank.
The degree of correlation between funding liquidity and market liquidity acts as an important parameter for evaluating the development of a financial market and reflects the activity of the market. The possibility that a bank could become unable to settle obligations with immediacy is called Funding Liquidity Risk.
Funding liquidity is essentially a binary concept: Funding liquidity risk, however, can take infinitely many values because it is related to the distribution of future outcomes. A different time scale is implicit in this distinction. Funding liquidity is associated with one particular point in time.
Conversely, funding liquidity risk is always forward-looking and measured over a specific horizon. In this respect, concerns about the future ability to settle obligations, like future funding liquidity, will have an impact on current funding liquidity risk.
The market liquidity and funding liquidity definition cash between liquidity and liquidity risk is straightforward and analogous to other risks.
The liquidity and profitability of the funding vary inversely. If cash is the most liquid asset and a non-profit asset at the same time, it is unlikely to bring benefits to an enterprise. From Wikipedia, the free encyclopedia. Funding liquidity risk [ edit ] The possibility that a bank could become unable to settle obligations with immediacy is called Funding Liquidity Risk. Funding liquidity and equity liquidity in the subprime crisis period: Ssrn Electronic Journal, 37 7— Retrieved from " https: Views Read Edit View history.
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