Central bank auctions reveal banks' liquidity risks
A Bank for International Settlements paper, published in July, says aggressive bidding in central bank auctions in the run up to the financial crisis revealed a high level of funding liquidity risk at banks.
The authors, Mathias Drehmann and Kleopatra Nikolaou, define funding liquidity as the ability to settle obligations with immediacy. Funding liquidity risk is driven by the possibility that over a specific horizon, the bank will become unable to settle obligations immediately.
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