certain limits, and state that short-term assets be in excess of short-run liabilities, in order to provide a safety net of highly liquid assets. Liquidity manage- ment is also concerned with funding deficits and investing surpluses, with managing and growing the balance sheet, and with ensuring that the bank THEGLOBALMONEYMARKETS     operates within regulatory and in-house limits. In this section we review the main issues concerned with liquidity and interest-rate risk. The liquidity gap is the difference, at all future dates, between assets and liabilities of the banking portfolio. Gaps generate liquidity risk. When liabilities exceed assets, there is an excess of funds. An excess does not of course generate liquidity risk, but it does generate interest-rate risk because the present value of the book is sensitive to changes in market rates. When assets exceed liabilities, there is a funding deficit and the bank has long-term commitments that are not currently funded by exist- ing operations. The liquidity risk is that the bank requires funds at a future date to match the assets. The bank is able to remove any liquidity risk by locking in maturities, but of course there is a cost involved as it will be dealing at longer maturities.4   Gap Risk and Limits Liquidity gaps are measured by taking the difference between outstanding balances of assets and liabilities over time. At any point a positive gap between assets and liabilities is equivalent to a deficit, and this is mea- sured as a cash amount. The marginal gap is the difference between the changes of assets and liabilities over a given period. A positive marginal gap means that the variation of the value of assets exceeds the variation of value of the liabilities. As new assets and liabilities are added over time, as part of the ordinary course of business, the gap profile changes. The gap profile is tabulated or charted (or both) during and at the end of each day as a primary measure of risk. For illustration, a tabulated gap report is shown in Exhibit 13.3 and is an actual example from a UK banking institution. It shows the assets and liabilities grouped into matu- rity buckets and the net position for each bucket. It is a snapshot today of the exposure, and hence funding requirement, of the bank for future maturity periods. Exhibit 13.3 is very much a summary presentation, because the matu- rity gaps are very wide. For risk management purposes, the buckets would be much narrower; for instance, the period between zero and 12 months might be split into 12 different maturity buckets. An example of a more detailed gap report is shown in Exhibit 13.4, which is from another UK banking institution. Note that the overall net position is zero, because this is a balance sheet and therefore, not surprisingly, it balances. How-