Sources of Liquidity

All bank assets are a potential source of liquidity. However, banks typically fund their operations by:

  • selling assets;
  • increasing liabilities, e.g., deposits or borrowings; and
  • increasing capital.

The way a bank meets its funding needs depends upon the cost and availability of its funding options. Costs, which include losses on forced asset sales as well as higher interest charges, depend upon such matters as asset and liability maturity mix and marketability of asset holdings. Availability of funding options depends largely on the bank’s overall financial condition and creditworthiness. Other factors that affect liquidity include: