Economics · Liquidity Risk in Banking
Liquidity risk in a commercial bank is distinguished from solvency risk as it focuses on immediate cash flow availability. Liquidity risk primarily intensifies when:
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1the non-performing assets (NPA) are fully collateralized by gold and real estate.
- 2the bank increases its investment in highly liquid government securities.
- 3the bank's capital adequacy ratio remains consistently above the Basel III requirements.
- 4there is a significant maturity mismatch between short-term liabilities and long-term illiquid assets.✓
Correct answer
there is a significant maturity mismatch between short-term liabilities and long-term illiquid assets.
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