Effective measurement of liability maturity concentration is central to assessing counterparty credit risk because concentrated short-dated liabilities amplify the risk that a counterparty cannot roll or refinance its obligations, triggering default or forced asset sales. Practitioners should quantify concentration both as a distributional profile across maturity buckets and as consolidated metrics that capture clustering and systemic significance. Darrell Duffie Stanford University highlights the importance of modeling the time profile of exposures when computing credit valuation adjustments and counterparty exposures, since maturity-driven liquidity strains change expected loss dynamics. The Basel Committee on Banking Supervision Bank for International Settlements provides supervisory guidance stressing limits on maturity mismatches and the need to include off balance sheet and derivative positions in assessments.
Measurement approaches
Measure maturity concentration by dividing liabilities into standard buckets such as overnight, 1 week to 1 month, 1 to 3 months, 3 to 12 months, and over 1 year and calculating the share of total liabilities maturing in each bucket. A high share in the shortest buckets signals vulnerability to roll risk. Complement bucket shares with the Herfindahl Hirschman Index HHI applied to maturity shares to produce a single concentration score where higher values indicate greater clustering. Also report the top n concentration ratio that captures the percentage of liabilities maturing within the first 90 days. For trading and derivatives, incorporate potential future exposure profiles from collateral and margining rules so that secured and unsecured liabilities are treated distinctly for wrong way risk considerations. Nuance arises when short liabilities are matched by highly liquid, unencumbered assets which can materially reduce effective concentration.
Stress testing and consequences
Translate static concentration measures into stress scenarios that simulate roll rates, haircuts and sudden increases in margin requirements. Use scenario outputs to estimate funding shortfalls and potential mark to market losses that feed into counterparty default probability. Consequences of ignored maturity concentration include sudden systemic liquidity squeezes, fire sales that create adverse price feedback loops and cross border contagion when funding markets are segmented by jurisdiction. Cultural and territorial differences matter because some markets rely more on short term wholesale funding or shadow banking structures which elevates concentration risk for local institutions. Sound practice combines simple concentration metrics with scenario driven simulations and supervisory benchmarks to produce a transparent, evidence based assessment of counterparty credit risk.