Liquidity gap is a term used in several types of financial situations to describe a discrepancy or mismatch in the supply or demand for a security or the maturity dates of securities. Banks deal with liquidity risks and potential liquidity gaps to the extent that they need to make sure they have enough cash on hand at all times to meet requests for funds.
When the maturity of assets and liabilities differ, or there is higher than expected demand for funds, the bank might experience a shortage of cash and, therefore, a liquidity gap.
