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Funding liquidity risk
A FRM term, defined in plain English with the distinction examiners test.
What it means
The risk of being unable to meet obligations as they fall due without incurring unacceptable losses.
The exam angle
Distinct from market liquidity risk, and the two amplify each other: forced sales move prices, which triggers more margin calls.
Where it appears in the syllabus
- Liquidity & Treasury RiskFRM Part II · exam weight 15% · Funding vs market liquidity, LVaR, transfer pricing, IRRBB, LCR and NSFR.
Related terms
- Bank runA self-fulfilling withdrawal of funding from an institution, where the rational individual choice to withdraw first…
- CollateralAssets pledged to secure an exposure, reducing loss if the counterparty defaults.
- Illiquidity premiumThe extra expected return demanded for holding an asset that cannot be sold quickly at a fair price.
- Initial and variation marginInitial margin is the good-faith deposit required to open a futures position; variation margin is the daily cash…
- Liquidity coverage ratioThe requirement that a bank holds enough high-quality liquid assets to survive a thirty-day stress scenario.
- Liquidity-adjusted VaRVaR extended to include the cost of closing the position — the bid–ask spread and the market impact of exiting at size.
Educational content only. This is not financial, investment, legal or regulatory advice. Check the official curriculum for your own exam before relying on any definition here.
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