The liquidity risk that an entity is exposed to over the long run. It covers the risk associated with positions and exposures with maturities exceeding two years. Long-term liquidity reflects an entity’s ability to meet its needs for liquid assets over the long run. For that purpose, certain measures are often used such as liquid assets to deposits (for a bank or banking institution). Liquid assets to deposits ratio measure bank’s liquidity in case a bank cannot secure funds from other banks by borrowing. A high ratio means that the bank is able to cope with long term liquidity risk.

This type of liquidity risk constitutes a case of maturity mismatch between assets and liabilities on the entire balance sheet – i.e. not just during over the short term or the most immediate period. Even if a bank’s short-term liquidity risk is minimal, the long term liquidity risk can be substantial, exposing an entity to funding problems in the long run.

Long-term liquidity risk is also known as a structural liquidity risk.