Liquidity gap analysis

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The liquidity gap analysis ( LAB ) of a credit institution means the structured mapping of (expected) payment flows over a certain period in the future (e.g. "short" LAB up to approx. 2 years, "long" LAB up to approx. 30 years) .

The purpose of the LAB is to indicate possible liquidity bottlenecks or risks for the periods considered in the LAB. The LAB thus functions as a modern method for controlling the risk of insolvency and the maturity transformation risk . The legal requirements for creating a LAB can be found in the Minimum Requirements for Risk Management (MaRisk) and the "Sound Practices for Managing Liquidity in Banking Organizations".

For the correct creation of a LAB, all assets of a bank must be analyzed with regard to their availability ( liquidity ) and with regard to the amount and timing of the cash flows resulting from the assets. The cash flows themselves must be differentiated into deterministic (e.g. fixed-rate loan) or stochastic (e.g. floating rate note) payments. For stochastic cash flows, the expected amount of the payment must also be determined. This can be done through the use of appropriate forward curves or through estimates.

Since not all payments ( interest , dividends , repayments, etc.) take place at exactly the same time, the payment flows can be summarized in maturity bands (e.g. monthly basis) to improve clarity.