MR marimo silas

According to Bank for International Settlements (BIS, 2009), many banks struggled to remain adequately liquid during global financial crisis in mid-2007. Unprecedented levels of liquidity support were required from central banks in order to sustain the financial system. Even with such extensive support, a number of banks failed, were forced into mergers or required resolution. The crisis showed the importance of adequate liquidity risk measurement and management. Commercial banks were heavily exposed to maturity mismatch both through their balance sheet and off-balance sheet vehicles and through their increased reliance on repo financing (Brunner Meier, 2009). A reduction in funding liquidity then caused significant distress as the Basel 2which mainly focused on operational risk, credit risk and market risk. A key characteristic of the financial crisis was the inaccurate and ineffective management of liquidity risk.
Liquidity
Is the ability of a bank to fund increase in assert and meet obligations as they fall due without incurring unacceptable losses. (BIS, 2008)
Liquidity risk
Involves the inability to fund increase in assets, manage unplanned changes in funding sources and to meet obligations as when required, without incurring additional costs or increasing a cash flow crisis.
Liquidity risk arises from situations in which a party interested in trading an asset cannot do it because nobody in the market wants to trade for that asset. Liquidity risk becomes particularly important to parties who are about to hold or currently hold an asset, since it affects their ability to trade, the following are two types of liquidity risk.
Market liquidity – An asset cannot be sold due to lack of liquidity in the market – essentially a sub-set of market risk, this can be accounted for by:
Widening bid/offer spread
Making explicit liquidity reserves

Funding liquidity – Risk that liability:
Cannot be met when they fall due
Can only be met at an uneconomic price