Liquidity Adjustment Facility


DEFINITION of 'Liquidity Adjustment Facility'

A tool used in monetary policy that allows banks to borrow money through repurchase agreements. This arrangement allows banks to respond to liquidity pressures and is used by governments to assure basic stability in the financial markets.

BREAKING DOWN 'Liquidity Adjustment Facility'

Liquidity adjustment facilities are used to aid banks in resolving any short-term cash shortages during periods of economic instability or from any other form of stress caused by forces beyond their control. Various banks will use eligible securities as collateral through a repo agreement and will use the funds to alleviate their short-term requirements, thus remaining stable.

  1. Liquidity

    The degree to which an asset or security can be quickly bought ...
  2. Monetary Policy

    Monetary policy is the actions of a central bank, currency board ...
  3. Event Risk

    1. The risk due to unforeseen events partaken by or associated ...
  4. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities. ...
  5. Collateral

    Property or other assets that a borrower offers a lender to secure ...
  6. Liquidity Risk

    The risk stemming from the lack of marketability of an investment ...
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