LIQUIDITY RISK MANAGEMENT IN BANKS AND ITS ROLE IN MAINTAINING FINANCIAL RESILIENCE

Abstract

Liquidity risk management has emerged as a critical component of financial stability, especially following the vulnerabilities exposed during past banking crises. The ability of banks to effectively manage their liquidity is paramount to ensuring not only their survival but also the resilience of the broader financial system. Recent studies reveal that liquidity shocks can precipitate rapid deposit outflows, leading to systemic crises when coupled with weaknesses in interbank lending mechanisms  (Rajendra P et al., 2025) . Furthermore, in exploring the delicate interplay between credit and liquidity risks, it becomes evident that while these risks may not directly interact contemporaneously, each independently affects bank stability, thereby necessitating a strategic approach to their joint management  (Ghenimi A et al., 2017) . This essay will delve into the intricacies of liquidity risk management, highlighting its pivotal role in enhancing financial resilience in contemporary banking practices.