Lack and excess of liquidity: symmetric approach

The idea here is to move from a simply illiquidity orientated view on liquidity risk to
a view on both insufficient as well as exceeding liquidity. Both cases could lead to
situations where we have to bear economic losses in respect to rates relatively to the
market. We might be only able to attract funds at ‘high’ rates as well as only being
able to place excess funds at sub-market rates.5 Another very good reason to consider
‘over-liquidity’ is the fact that excess funds have to be loaned out and thus create
credit risk if not collaterized.