DEFINITION of 'Mismatch'

In general, this means to match incorrectly or unsuitably. In the banking world, it refers to a situation pertaining to asset and liability management. A mismatch occurs when assets that earn interest do not balance with liabilities upon which interest must be paid. For example, an asset that is funded by a liability with a different maturity creates a mismatch.

BREAKING DOWN 'Mismatch'

Also known as mismatched books, this situation is common in banking. For example, a bank may borrow for the short term and make long-term loans. Therefore they will fund 30 year mortgages with short term deposits, anticipating that the deposits will be rolled over.

RELATED TERMS
  1. Maturity Mismatch

    The tendency of a business to mismatch its balance sheet by possessing ...
  2. Unmatched Book

    An imbalance that occurs when the maturity of a bank's assets, ...
  3. Liability

    Liabilities are defined as a company's legal debts or obligations ...
  4. Mismatch Risk

    1) A category of risk that refers to the possibility that a swap ...
  5. Total Liabilities

    The aggregate of all debts an individual or company is liable ...
  6. Net Interest Income

    The difference between the revenue that is generated from a bank's ...
Related Articles
  1. Investing

    Examples Of Asset/Liability Management

    In its simplest form, asset/liability management entails managing assets and cash inflows to satisfy various obligations; however, it's rarely that simple.
  2. Investing

    Analyzing A Bank's Financial Statement

    Investors should analyze a bank’s interest rate risk and credit risk when analyzing its financial statement.
  3. Investing

    Understanding Total Liabilities

    Total liabilities are the combined debts an individual or company owes.
  4. Investing

    Analyzing A Bank's Financial Statements

    A careful review of a bank's financial statements can help you identify key factors in a potential investment.
  5. Personal Finance

    How To Improve Net Worth By Decreasing Liabilities

    Here's an analysis of how to adjust liabilities and assets to improve net worth.
  6. Personal Finance

    Riding The Market Bubble: Don't Try This At Home

    Riding the bubble takes timing, a clear understanding of the market and, most of all, a lot of luck.
  7. Investing

    Current Liabilities

    Current Liabilities are company debts due within one year or one operating cycle, whichever is greater. An operating cycle is the time it takes a company to purchase inventory and convert it ...
  8. Investing

    Figuring Out How To Cover Your Liability Bases

    Whenever we talk about the asset-liability approach to portfolio management (ALM), the concepts of immunization and cash flow matching come into play.
  9. Investing

    Watch A Bank's Liabilities

    The Federal Reserve will eventually raise interest rates, raising the cost of funds for many banks.
  10. Investing

    How To Analyze A Company's Financial Position

    Find out how to calculate important ratios and compare them to market value.
RELATED FAQS
  1. Do banks have working capital?

    Learn the reasons why banks do not have working capital due to the lack of typical current assets and liabilities accounts, ... Read Answer >>
  2. How might a company's contingent liabilities affect its share price?

    Discover what contingent liabilities are, and how and to what extent such liabilities may have an impact on a company's share ... Read Answer >>
  3. What kinds of liabilities appear on the balance sheet?

    Learn what current and non-current liabilities are, the difference between the two, and examples of liabilities that a company ... Read Answer >>
  4. What are some examples of current liabilities?

    Examine some common examples of current liabilities a company may owe within a year or less in order to accurately assess ... Read Answer >>
  5. Which of the following statements is (are) true with respect to the factors that ...

    The correct answer is: d) (I) is incorrect because if interest rates are expected to rise, banks will generally "increase" ... Read Answer >>
  6. What items on the balance sheet are most important in fundamental analysis?

    Read about which balance sheet items are considered most important for fundamental analysis, including cash, current liabilities ... Read Answer >>
Trading Center