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Gap

• Mismatch between the maturities of a bank's assets and liabilities.

• Is the term used to described differences or imbalances in asset and liability categories or buckets.

 
 Embedded terms in definition
 Assets
Asset
Buckets
Liabilities
Liability
Mismatch
 
 Referenced Terms
 A&l management: Is the analysis and management of the firm's assets and liabilities or balance sheet items. Related to Gap or Bucket operations.

 Asset and liability management: Is the process for financial institutions and corporations to adjust their funding and usage of funds. Some approaches are the Bucket, Gap, Hedging, Matched Book, Matched Funding, Financial Swaps, and Structured Products. With the lowering of various insurance, investment and commercial banking barriers, the definition is now more inclusive. Previously, it tended to be reserved for non-investment banking and brokerage operations. Broker/dealer institutions tended to describe their hedging activities as risk management.

 Dollar gap: See Repricing Gap.

 Duration gap: Duration Gap = Duration of the assets - Duration of the Liabilities. A positive duration gap means that the duration of assets is greater than the duration of the liabilities. When interest rates increase, all securities lose value, and the securities with longer durations will lose even more value. Hence, when interest rates increase, banks with positive duration gaps will lose value.

 Gap trade: A market is said to Gap trade when prices in it move discontinuously from range to range in response to announcements of economic numbers.

 
 Related Terms
 Dollar gap
Duration gap
Gap trade
Maturity gap
Repricing gap

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