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.

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