This article is an unedited draft from my banking primer manuscript. It probably needs more work, but I will not be able to look at again for awhile. One of the main economic functions of banks is providing liquidity to other actors – i.e., ensuring that clients can get funding on short notice. Banks are only able to do this by themselves carefully managing liquidity risk. Although the central bank can bail out the banking system if something goes horribly wrong, the expectation is that private banks should manage liquidity risk on their own.
Primer: Bank Liquidity Risk
Primer: Bank Liquidity Risk
Primer: Bank Liquidity Risk
This article is an unedited draft from my banking primer manuscript. It probably needs more work, but I will not be able to look at again for awhile. One of the main economic functions of banks is providing liquidity to other actors – i.e., ensuring that clients can get funding on short notice. Banks are only able to do this by themselves carefully managing liquidity risk. Although the central bank can bail out the banking system if something goes horribly wrong, the expectation is that private banks should manage liquidity risk on their own.