13.2 Cumulative Gaps

Cumulative Gap is the net gap from today up to a given time horizon or time bucket in the future. It is calculated as the sum of liquidity gaps from the first time bucket up to each future time bucket. The cumulative gap can be positive or negative, depending on whether cumulative inflows are greater than the cumulative outflows and vice versa.

The cumulative gap is computed as follows:

Figure 13-2 Formula to calculate the cumulative gap

Where,

T: Each time bucket

N: Total number of time buckets

The cumulative gap is computed under contractual terms, business-as-usual conditions and stress scenarios.

In the following example, Numerical Example (in $).

Table 13-1 Cumulative Gaps Example

Time Bucket	1-14 Days	15-28 Days	29 Days – 3 Months	3-6 Months
Inflows	500	300	1000	2000
Outflows	200	500	1250	1500
Liquidity Gap	300 [=500-200]	-200 [=300-500]	-250 [=1000-1250]	500 [=2000-1500]
Cumulative Gap	300	100 [=300+(-200)]	-150 [=100+(-250)]	350 [=-150+500]

In the preceding example, the cumulative gap at the end of 6 months works out to $350 whereas the liquidity gap in the 3-6 months’ time bucket is $ 500.

Note:

This calculation occurs at the reporting layer.