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Because banks raise funds almost completely by issuing/accepting deposits that are (almost always) demandable at any...

Because banks raise funds almost completely by issuing/accepting deposits that are (almost always) demandable at any time by the depositors, and use those funds to make loans, banks must measure and manage

technology risk.

operating risk.

liquidity risk.

credit risk.

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Answer #1

Answer- Liquidity risk

The banks have deposits of the savers with them. These deposits are further given as loans to borrowers. Now in case if the depositors want to withdraw their money they should be able to do so from the bank,but in case the bank is not able to do so ,it can have repercussions for the bank.This risk is called liquidity risk.

Therefore it is very important that banks manage the liquidity risk and they do it by keeping adequate liquid assets so as to meet day to day obligations

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