THE DYNAMICS OF LIQUIDITY RISKS: BANKING SECTOR RESILIENCE AND ECONOMIC IMPLICATIONS

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THE DYNAMICS OF LIQUIDITY RISKS: BANKING SECTOR RESILIENCE AND ECONOMIC IMPLICATIONS

Journal Title: Scientific Work - Year 2024, Vol 18, Issue 3

Abstract

Abstract This article examines the dynamics of liquidity risks within the banking sector, their implications for financial stability, and the consequent effects on the broader economy. Liquidity risks, stemming from the inherent mismatch between a bank's short-term liabilities and long-term assets, pose significant challenges to financial institutions. These risks are exacerbated during periods of financial stress, leading to potential bank runs and systemic crises. The resilience of the banking sector against such risks is critical, hinging on both regulatory measures like the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR), and banks' internal liquidity management (such as Stress Tests) practices. This study explores how these mechanisms contribute to the stability of the financial system and examines their effectiveness in the face of evolving market conditions and economic policies. Furthermore, it delves into the economic implications of liquidity risks, highlighting the potential for credit crunches that can hamper economic growth, increase unemployment, and trigger recessions. The analysis concludes that a multifaceted approach, encompassing rigorous risk management, robust regulatory frameworks, and proactive financial oversight, is essential to mitigate liquidity risks and protect the economy. This comprehensive examination sheds light on the intricate interplay between liquidity risks, banking sector resilience, and economic outcomes, offering insights into the importance of safeguarding financial stability in a dynamically changing economic landscape.

Authors and Affiliations

Parviz Gasimov

Keywords

EP ID EP748925
DOI 10.36719/2663-4619/100/106-111
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