Liquidity risk is the occurrence of a situation in which a bank cannot fulfill its obligations or is unable to provide the required growth of assets. The worst development of this situation leads to the insolvency of the organization, in other words, to its complete bankruptcy. It is also called a decrease in efficiency. It occurs when changes occur in current assets. This is a left-side risk, this name is due to the location of these assets in the balance sheet. If obligations change, then the risk is called right-handed, according to a similar picture.
Definition
An important point is that the liquidity risk has a close relationship with other risks, namely, credit, deposit and interest. Its occurrence is fully justified by a change in the quality of liabilities and assets, and subsequently this leads to the complete insolvency of the organization, that is, to its direct bankruptcy.
Bank rate structure
There is an important indicator - the risk of loss premium (LP). It is completely dependent on debt banking obligations, in other words, on the bank’s ability to exchange the necessary savings for cash and not lose it when exchanging them. If this indicator is zero, then the liquidity risk is maximum. Risk reduction will be observed if the indicator grows in a positive direction. 
In a situation where short-term debt is equal to zero, the value of current assets and working capital will be equal, in addition, the latter will reach its maximum. Moreover, the presence of risk is not considered in case of its absence. It is worth considering that this scheme is hypothetical. But at the same time, these indicators can be considered as a chance to pay an acceptable level of risk, this, in turn, will help the organization to maintain normal solvency over the next production cycle.
Compromises
The search for a path that will lead to a compromise between risks, profits, current assets and sources of coverage for these funds is a study of the various risks that are reflected in the theory of financial management. Profitability ratios are the same compromise that is achieved by managing working capital. In other words, the trade-off between work efficiency and the risk of liquidity loss directly depends on the working capital management policy. This method leads us to two important issues.
Conservative model
It is necessary to choose the optimal structure of the banking portfolio of finances, which will include the liquidity risk of the asset, market risk and profitability of operations, this is the purpose of this work. In other words, you need to choose the optimal risk-based management policy in order to increase profitability and achieve the optimal value of the risk of loss. 
A reasonable solution in this situation would be to establish certain limits on the specific operational actions of a commercial organization. This list includes:
- Possible losses.
- Market (prices and interest rates).
- Credit limit (taking into account the risk of the counterparty not meeting its promises, default, securities).
- Liquidity (restrictions taking into account the implementation of a negative scenario).
Net working capital
The level of net working capital directly affects the liquidity and acceptable efficiency of assets in their current state.Depending on whether this indicator tends to zero or grows, the risk of loss of liquidity will fluctuate. The risk is equal to zero only if there are no short-term credit debts, and M (net working capital) reached its maximum, that is, assets are equal to capital. 
If we consider the conservative model, we see that the fluctuating part of the assets can be completely blocked by long-term liabilities. Naturally, this model is completely artificial, since it assumes the absence of short-term payables and a zero risk indicator.
Restrictive policy
If a restrictive policy is pursued, the level of current assets will tend to its minimum values. This policy framework, which offers liquidity risk management, can increase the turnover of funds, as well as reduce the need for capital. But it is worth considering that it brings the organization closer to bankruptcy. Naturally, the use of short-term debt as an overlap of fixed capital is impossible. If the bank has made short-term liabilities, then it has the maximum risk of loss, and working capital is zero. 
But if there are no short-term liabilities, and they are equal to zero, then the loss of liquidity does not threaten the organization, but there is no profit either, which is not at all positive for the bank. In other words, the management needs to choose what is more important for them - to reduce the liquidity risk or make a profit, since these two indicators are proportionally reflective of each other. Also, support for the level of risks can be carried out due to excess assets, this will negatively affect profits, but here, again, you need to seek a compromise.
Compromise model
This model looks more real and is suitable for the prevailing reality of the existence of the banking sector. Working capital is blocked by all possible means. The formula looks like the sum of constant working capital and half of variable working capital equal to net working capital. In other words, profit does not reach its maximum at all, but due to this, there is a decrease in the risk of bankruptcy. Here profitability (risk) suffers, while liquidity is stable. Naturally, in a situation of a really working bank, a lot of money will go to service this scheme, but at the same time, all indicators directly depend on each other and affect the normal functioning of the organization as a whole.
