Matched Book

Banks basically act as clearing houses for money. Despite the big, impressive vault and the drawers full of money, banks don't hold onto that much cash (relatively speaking). For the most part, money comes in and money goes out. That's fundamentally a bank's business model: get a hold of money and lend it out at a higher interest rate.

However, this can lead to mismatches if the bank doesn't pay attention. A bank borrows money in the short-term...then it lends the funds out for a 30-year mortgage. That situation can lead to a problem. It needs to pay back the short-term loan before it gets repaid on the long-haul mortgage.

A matched book represents a way to solve this problem. In this technique, a bank tries to match the maturities of its assets with the maturities of its liabilities. The time intervals on both sides of the ledger match up.

To put it another way, the company has the same proportion of short-term maturities on the asset side as on the liability side. Basically, the bank is making sure that, as money goes out, there's enough money coming in to cover that amount.