Liquidity Gap

DEFINITION of 'Liquidity Gap'

The difference between a firm's assets and a firm's liabilities, caused by said assets and liabilities not sharing the same properties. This gap can be positive or negative, depending on if the firm has more assets than liabilities or vice versa.

BREAKING DOWN 'Liquidity Gap'

For banks, the liquidity gap can change over the course of the day as deposits and withdrawals are made. This means that the liquidity gap is more of a quick snapshot of a firm's risk, rather than a figure that can be worked over for a long period of time. To compare periods of time banks, calculate the marginal gap, which is the difference between gaps of different periods.

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