Asset Quality of Banks

Solvency risk is the risk that an institution cannot meet maturing obligations as they come due for full value (even if it may be able to settle at some unspecified time in the future) even after disposal of its assets. Liquidity risk refers to the risk that involves the disposal of assets or selling of assets.

On the contrary Liquidity risk refers to the risk that involves the disposal of assets or selling of assets. An asset may be sold quickly thus stating that the asset is highly liquid. Indeed, liquidity risk includes the management of funding sources and the overall monitoring of the market conditions. This is therefore bound to affect the ability to liquidate the assets of the firm with very little loss in the value of the assets.