Liquidity Risk Law and Legal Definition

Liquidity is the immediate convertibility of assets into cash without significant loss of value. Liquidity risk is the risk of being unable to sell an asset immediately without losing market value. In banking, liquidity risk arise when available fund will be insufficient to meet demand. In such situations banks will be compelled to sell assets at a loss in order to meet cash demands. For example, situations where depositors demand for funds before maturity. Liquidity can also mean the current ability to meet liability.