Financial institutions generally do not face liquidity risk.

Question

Quizplus · Accepted Answer

Financial institutions, just like any other business, face liquidity risk. This refers to the risk of being unable to meet the demands for cash (i.e. liquid assets) from depositors or investors. In the event of a sudden increase in demand for cash, a financial institution may not have enough liquid assets to meet those demands and may need to sell illiquid assets at a loss or borrow at unfavorable rates, resulting in financial instability.

Financial Institutions Generally Do Not Face Liquidity Risk