Editing Market liquidity (section)

==Banking==
In banking, liquidity is the ability to meet obligations when they come due without incurring unacceptable losses. Managing liquidity is a daily process requiring [[bankers]] to monitor and project cash flows to ensure adequate liquidity is maintained. Maintaining a balance between short-term assets and short-term liabilities is critical. For an individual bank, clients' deposits are its primary [[Liability (financial accounting)|liabilities]] (in the sense that the bank is meant to give back all client deposits on demand), whereas reserves and loans are its primary [[asset]]s (in the sense that these loans are owed to the bank, not by the bank). The investment portfolio represents a smaller portion of assets, and serves as the primary source of liquidity. Investment securities can be liquidated to satisfy deposit withdrawals and increased loan demand.  Banks have several additional options for generating liquidity, such as selling loans, [[Interbank lending market|borrowing from other banks]], borrowing from a [[central bank]], such as the [[Federal Reserve System|US Federal Reserve bank]], and raising additional capital. In a worst-case scenario, depositors may demand their funds when the bank is unable to generate adequate cash without incurring substantial financial losses. In severe cases, this may result in a [[bank run]].

Banks can generally maintain as much liquidity as desired because bank deposits are insured by governments in most developed countries. A lack of liquidity can be remedied by raising deposit rates and effectively marketing deposit products. However, an important measure of a bank's value and success is the cost of liquidity. A bank can attract significant liquid funds. Lower costs generate stronger profits, more stability, and more confidence among depositors, investors, and regulators.