What is a 'Negative Gap'

A negative gap is a situation where a bank's interest-sensitive liabilities exceed its interest-sensitive assets. A negative gap is not necessarily a bad thing, because if interest rates decline, the bank's liabilities would get repriced at lower interest rates and income would increase. However, if interest rates increase, liabilities would get repriced at higher rates and income would decrease.

The opposite of a negative gap is a positive gap, where a bank's interest-sensitive assets exceed its interest-sensitive liabilities.

BREAKING DOWN 'Negative Gap'

Gap analysis offers a simplified way to determine a bank's interest-rate risk as it relates to repricing – the change in interest rate when an interest-sensitive investment matures. The size of a bank's gap indicates how much of an impact interest-rate changes will have on a bank's net interest income.

RELATED TERMS
  1. Repricing Opportunity

    The change in interest rate of an interest-sensitive asset or ...
  2. Interest Rate Gap

    The difference between fixed rate liabilities and fixed rate ...
  3. Static Gap

    A measure of exposure or sensitivity to interest rates. Static ...
  4. Gapping

    In general, a trading strategy in which the participant borrows ...
  5. Dynamic Gap

    Refers to asset and liability risk management at financial institutions. ...
  6. Net Interest Income

    The difference between the revenue that is generated from a bank's ...
Related Articles
  1. Trading

    Playing The Gap

    Learn how you can earn money by analyzing the disruptions in normal price patterns.
  2. Trading

    Know How To Manage Gaps On Your Trading Strategy

    Gaps generate profitable strategies right after they print, as well as during retracements that test those levels, often months or years later.
  3. Trading

    3 Gap Trades On SP-500 Stocks (AMAT, NEM)

    Gaps generate all sorts of trading signals, both when they occur and when price pulls back to test or fill them.
  4. Investing

    Gap Strategies To Try For Intraday Trades

    Many traders lack effective strategies to manage gaps, whether they pop up on open positions or mark the first play of the day. These strategies may help.
  5. Investing

    Should Investors Squeeze Into The Gap?

    The Gap is closing stores and conducting layoffs. Will investor panic lead to opportunity?
  6. Insurance

    Steer Clear of Over-Priced Gap Insurance Providers

    Major insurers will generally give you a better deal on gap insurance than a car dealership. But watch for gaps in gap coverage.
  7. Investing

    How Gap Plans to get Back in Style (GPS)

    Gap is currently out of style. Here's how it plans to change that.
  8. Investing

    Understanding Total Liabilities

    Total liabilities are the combined debts an individual or company owes.
  9. Investing

    Reviewing Liabilities On The Balance Sheet

    As an experienced or new analyst, liabilities tell a deep story of how a company finances, plans and accounts for money it will need to pay at a future date.
RELATED FAQS
  1. How are Sanku (Three Gaps) patterns interpreted by analysts and traders?

    Find out how analysts and traders interpret a Sanku, or three gaps, pattern located within a bar chart or Japanese candlestick ... Read Answer >>
  2. What are the main differences between a Runaway Gap and a Exhaustion Gap?

    Discover the primary differences between runaway and exhaustion gaps, and see why gap differentiation depends on subsequent ... Read Answer >>
  3. What are the main differences between Exhaustion Gaps and Breakaway Gaps?

    Read about the primary differences between two types of price chart gaps – breakaway and exhaustion – and how traders react ... Read Answer >>
  4. How are Runaway Gap patterns interpreted by analysts and traders?

    Find out what runaway gaps mean in a price chart and how traders and technical analysts interpret them differently than other ... Read Answer >>
  5. How do I implement a forex strategy when spotting a Runaway Gap Pattern?

    Read about some strategies to consider after spotting a runaway gap pattern in the forex market, including how to distinguish ... Read Answer >>
  6. How do I build a profitable strategy when spotting an Exhaustion Gap?

    Learn potentially very profitable trading strategies traders use to take advantage of a market reversal after identifying ... Read Answer >>
Trading Center