Matched Book

What Is a Matched Book?

A matched book is an approach that banks and different institutions might take to guarantee that the maturities of its assets and liabilities are similarly distributed. A matched book is otherwise called "asset/risk management" or "money matching."

There is a functional benefit to embracing the matched book method; it lets a bank or some other financial entity oversee its liquidity as well as oversee risk to the extent that interest rate. Regardless of likely benefits, this approach isn't generally put to use by institutions.

Figuring out Matched Books

A matched book is a risk management technique for banks and other financial institutions that guarantees that they have equivalent valued liabilities and assets with equivalent maturities. Basically, a bank that takes on this approach is seeking a balance between its lending and liquidity to better regulate its overall risk.

Under the matched book method, a work is made to keep assets and liabilities as closely in parity with one another as could really be expected. That incorporates the amortization of assets. Matching is additionally finished for the interest rates for assets and liabilities.

This means matching any fixed loans to fixed-rate assets, and furthermore floating-rate loans to floating-rate assets. With floating-rate instruments, they would need to be set to match with the spans for resets on interest rates.

Ways a Matched Book Is Applied

A matched book methodology is an approach to 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 real market price of credit risk. This can happen with riskier bonds.

In an alternate setting, explicitly in repo transactions, a matched book can adopt an alternate strategy. Under this case, a bank might leverage reverse repurchase agreements and repurchase agreements to keep up with what is called a matched book even however there probably won't be a balance. The bank could borrow at one rate and afterward loan at a higher rate so it could earn a spread and generate profits.

There can be even more instances of what is called matched book. A bank could trade repurchase agreements for covering short and long bond positions. There may likewise be traders who keep a matched book to exploit short-term interest rate changes comparable to the supply and demand expected of underlying stock.

Not at all like the banks seeking to moderate and oversee risk, traders could embrace the matched book method for taking on places that can be advantageous to them across various types of bonds and stock.

Features

• A matched book is an approach that financial institutions might take to guarantee equivalent distribution of the maturities of its assets and liabilities.
• Other than the banking applications, traders might keep a matched book to exploit short-term interest rate changes connected with the supply and demand expected of underlying stock.
• A matched book is otherwise called "asset/responsibility management" or "money matching."
• A matched book methodology is for cutting down spread risk — the potential for a change in value between expected price and genuine market price of credit risk.