When a bank liquidator evaluates the bank’s assets and identifies a maturity mismatch resulting in heavy losses, several difficulties may arise, which can complicate the liquidation process and impact the overall recovery for creditors and other stakeholders:

Valuation Challenges: Maturity mismatches, where short-term liabilities exceed short-term assets, can create challenges in accurately valuing the bank’s assets, particularly if they consist of long-term investments or illiquid assets. The liquidator may struggle to determine the true market value of these assets, which could affect the overall asset distribution among creditors.

Reduced Asset Recoveries: A significant maturity mismatch can lead to forced sales of the bank’s long-term or illiquid assets to meet short-term liabilities. This often results in the sale of assets at a lower price than their actual value, reducing the overall recoveries for creditors and depositors.

Prolonged Liquidation Process: The liquidation process may be prolonged due to the need to sell illiquid or long-term assets to cover the bank’s short-term obligations. This delay can increase administrative costs and create uncertainty for creditors and depositors awaiting reimbursement.

Higher Credit Risk: Maturity mismatches may lead to a higher credit risk, as the bank’s ability to meet its short-term obligations becomes increasingly uncertain. This can result in a lower credit rating for the bank, which can further reduce the value of its assets and impact the recoveries for creditors.

Lower Creditor Confidence: Creditors may lose confidence in the bank’s ability to repay its obligations, given the maturity mismatch and the potential for heavy losses. This can cause creditors to withdraw their support or demand higher interest rates, exacerbating the bank’s financial difficulties and complicating the liquidation process.

Overall, the presence of a maturity mismatch resulting in heavy losses can significantly complicate the bank liquidation process, making it more challenging for the liquidator to maximize asset recoveries and distribute proceeds fairly among creditors and other stakeholders.