What do you understand by asset liability mismatch?

Asset liability mismatch occurs when the cash flows or maturities of an entity's assets do not align with those of its liabilities. This can lead to liquidity risks, as the entity may struggle to meet its obligations when they come due. For example, if a bank has long-term loans as assets but short-term deposits as liabilities, it could face difficulties if depositors withdraw funds unexpectedly. Proper management of this mismatch is crucial for maintaining financial stability and ensuring solvency.