DEFINITION of 'Static Gap'

Static gap is a measure of exposure or sensitivity to interest rates, calculated as the difference between assets and liabilities of comparable repricing periods. It can be calculated for short-term and long-term time periods. Minus signs (or a negative value) in the calculated gap indicates that you have a greater number of liabilities than assets maturing at that particular maturity, and therefore have exposure to rising rates.


Static gap is usually calculated for periods of less than a year – often 0 to 30 days or 31 to 90 days – but can also be calculated for multiple periods. Simple static gaps are inherently imprecise measurements because they do not take into account such factors as interim cash flow, average maturity, and prepayment of the loan.

Static Gap Example

For example, a bank has both $5 million in assets and $5 million in liabilities that reprice in any given time window. Changes in interest rates should not change the bank's net interest margin. Under this scenario, we'd have a balanced gap position. If instead, $12 million in assets reprice with only $6 million in liabilities repricing, the bank is in an asset sensitive position. In this case, an asset sensitive bank will benefit from a net interest margin increase if interest rates rise. In contrast, if only $5 million in assets reprice during the same period that $8 million in liabilities reprice, it is known as a liability sensitive position. Here, if interest rates rise, net interest margin will decline. Similarly, if interest rates fall the liability-sensitive bank will project a wider net interest margin.

A common, and glaring hole in gap analysis is its inability to account for the optionality embedded in many assets and liabilities. If rates drop and assets prepay faster than expected, or if rates rise and the average life of assets is unexpectedly extended, these contingencies are typically not a component of simple static gap reporting and analysis. Other issues arise for non-maturity deposits — certain deposits are carried in perpetuity.

  1. Dynamic Gap

    Dynamic gap refers to a method of measuring the gap between a ...
  2. Net Interest Income

    The difference between the revenue that is generated from a bank's ...
  3. Common Gap

    Common gap is a price gap found on a price chart for an asset. ...
  4. Gap

    A gap is a term related to price charts where a stock makes a ...
  5. Gap Analysis

    Gap analysis refers to the process through which a company compares ...
  6. Zero-Gap Condition

    When a financial institution's interest rate-sensitive assets ...
Related Articles
  1. 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.
  2. Investing

    Examples Of Asset/Liability Management

    In its simplest form, asset/liability management entails managing assets and cash inflows to satisfy various obligations; however, it's rarely that simple.
  3. Investing

    Should Investors Squeeze Into The Gap?

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

    How Gap Plans to get Back in Style (GPS)

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

    Accounting Guidelines for Contingent Liabilities

    Learn how the Financial Accounting Standards Board, or FASB, treats the recognition, estimation and disclosure of contingent liabilities under GAAP.
  6. Personal Finance

    Common Liabilities That Hurt Your Net Worth

    Every penny that you keep out of the liability side of the net worth equation essentially ends up on the asset side.
  7. Investing

    Apparel Retailer Earnings to Watch for This Week

    After a period of decline, these two retailers are hoping to maintain long-term viability.
  8. Investing

    How Negative Interest Rates Can Affect Banks' Bottom Lines

    Examine the impacts of low interest rates on banking industry profits and find out if negative interest rates will have a more extreme effect.
  9. Investing

    Investors Overlooking 'Powerhouse' Old Navy: Jefferies

    Gap Inc.’s recent stock rally has much further to run as investors have yet to fully appreciate the exciting earnings potential of the clothing giant’s apparel chain Old Navy, according to analysts ...
  1. How do you calculate working capital?

    The formula for calculating working capital is straightforward, but lends great insight into the short-term financial health ... Read Answer >>
  2. What Are Some Examples of Current Liabilities?

    Look at some common examples of current liabilities a company may owe within a year or less in order to accurately assess ... Read Answer >>
  3. What net interest margin is typical for a bank?

    Understand what kind of net interest margin is typical for banks or other financial institutions and discover why net income ... Read Answer >>
  4. What items on the balance sheet are most important in fundamental analysis?

    Read about which balance sheet items are considered most important for fundamental analysis, including cash, current liabilities ... Read Answer >>
  5. What is happening during a risk repricing?

    During a strong bull market, the market's overall sense of optimism can often lead to poor estimates about the level of risk ... Read Answer >>
Trading Center