A type of risk (similar to a basis risk) that arises from a mismatch between the revenues an entity generate from its assets and the costs of its non-current liabilities (fixed liabilities) due to the potential to incur costs associated with differences in liquidity/ maturity on the two sides of a balance sheet (liquidity and maturity mismatches), changes in credit worthiness (credit quality), etc. In other words, it reflects the potential to incur unanticipated costs or losses due to an entity’s inability to match asset yields with liability funding costs.

In general, funding risk is the risk associated with the impact on an entity’s cash flows from an increase in funding costs or lack of, or inability to raise, funds for its operations.

In relation to a position, funding risk may refer to a potential liability (on a market participant) to meet specific cash or collateral requirements, instigating an early exit or premature liquidation of a position.