What Is a Matched Book?

A matched book is an approach that banks and other institutions may take to ensure that the maturities of its assets and liabilities are equally distributed. A matched book is also known as "asset/liability management" or "cash matching."

There is a functional benefit to adopting the matched book method; it lets a bank or any other fi♈nancial entity supervise its liquidity as well as manage risk as far as interest rate. Despite potential benefits, this approach is not always put to use by institutions.

Understanding Matched Books

A matched book is a risk management technique for banks and other financial institutions that ensures that they have equal valued liabilities and assets with equal maturi🃏ties. Essentially, a bank that adopts this approach is seeking a balance between its lending and liquidity in order to better oversee its overall risk.

Under the matched book method, an effort is made to keep assets and liabilities as closely in parity with each other as possible. That includes the amortization of assets. Matching is also done for the interest rates forꦡ assets and liabilities.

This means matching any fixed loans to fixed-rate assets, and also 澳洲幸运5官方开奖结果体彩网:floating-rate loans to floating-rate assets. With floating-rate instruments, they would have to be set to coincide with the intervals f💯or resets on interest rates.

Ways a Matched Book Is Applied

A matched book methodology is a way of cutting down on spread risk, which is the potential for there to be a change in value between the expected price of a credit risk and the actual market price of cre꧂dit risk. This can occu🍬r with riskier bonds.

In a different context, specifically in repo transactions, a matched book can take a different approach. Under this instance, a bank may leverage rﷺeveಞrse repurchase agreements and repurchase agreements to maintain what is called a matched book even though there might not be a balance. The bank might borrow at one rate and then lend at a higher rate so it might earn a spread and𝓰 generate profits.

There can be even more examples of what is called matched༺ book. A bank might trade repurchase agreements for the sake of covering short and long bond positions. There may also be traders who maintain a matched book to take advantage of short-term꧟ interest rate changes in relation to the supply and demand expected of underlying stock.

Unlike the banks seeking to mitigate and manage risk, traders might adopt the matched book method🔯 fo﷽r the sake of taking on positions that can be advantageous to them across different types of bonds and stock.