Liquidity (risk) concepts: definitions and interactions

Arbeitspapier

We discuss the notion of liquidity and liquidity risk within the financial system. We distinguish between three different liquidity types, central bank liquidity, funding and market liquidity and their relevant risks. In order to understand the workings of financial system liquidity, as well as the role of the central bank, we bring together relevant literature from different areas and review liquidity linkages among these three types in normal and turbulent times. We stress that the root of liquidity risk lies in information asymmetries and the existence of incomplete markets. The role of central bank liquidity can be important in managing a liquidity crisis, yet it is not a panacea. It can act as an immediate but temporary buffer to liquidity shocks, thereby allowing time for supervision and regulation to confront the causes of liquidity risk.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 1008

Classification and Topics

• Classification: Wirtschaft ; General Financial Markets: General (includes Measurement and Data) ; Financial Institutions and Services: General
• Subject: Central Bank ; liquidity ; LLR ; risk ; Finanzmarkt ; Geldmarkt ; Bankenliquidität ; Marktliquidität ; Liquidität ; Zentralbank ; Unvollkommener Markt ; Asymmetrische Information

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Nikolaou, Kleopatra
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/153442
• Last update: 10.03.2025, 11:45 AM CET