Liquidity risk, traditionally defined as the risk that a bank cannot meet payment obligations in a timely and cost-effective manner, is another. Determining what is adequate liquidity for banking organizations has always been a rather subjective and difficult task, because banks rarely have liquidity problems as long as they are viewed as sound.
Although the competition for retail deposits has emerged in the past several years, banks can still relatively easily issue additional insured deposits, given the federal government's guarantee. Most liquidity problems arise when market confidence is lost and the bank cannot attract sufficient levels of uninsured funds. Commercial banks, in particular, may have little room to slip, given their high leverage and slim profit margins.