Liverpool are without central defenders Virgil van Dijk and Joe Gomez due to long-term injuries and Cameroon global Matip was forced off with an ankle ligament injury in their 3-1 league win at Tottenham Hotspur last week.
After completing his dream move, Davies said: 'I'm obviously delighted to be here. "I've never actually been to Anfield".
Liverpool will pay a further £500,000 loan fee for Kabak should they qualify for next year's Champions League.
Last-placed Schalke has conceded 49 goals in the league - nine more than any other team.
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However, injuries have caused him to miss multiple games this season, with just 10 Premier League appearances and two Champions League outings under his belt.
While the transfer window for Premier League and EFL clubs shut at 11pm GMT, the PA news agency understands Southampton have submitted a deal sheet in order to complete the loan signing of Takumi Minamino. They now sit in third place, four points behind Manchester City in the race for the title - though their rivals do possess a game in hand.
It was proving to be one of the quieter deadline days in the English top division, at the end of a month when clubs reined in their spending during the pandemic.
West Ham defender Winston Reid has joined Brentford on loan until the end of the season. "He's here now in a stable team and we're doing a lot of things that can help him and he can help us". If he'd gone to Celtic, which I'd heard had been agreed, then I was thinking he could do well there, but being honest I didn't really see him as being good enough to be on Liverpool's radar.
Liverpool have had to use sixteen different centre-back pairings this campaign, with inexperienced defenders Rhys Williams and Nathaniel Phillips stepping in alongside midfielders Fabinho, Matip and Jordan Henderson in Van Dijk and Gomez' absence. The 19-year-old Ecuadorian has penned a deal until 2025. The 25-year-old centre-back comes in to reinforce a depleted area in Jurgen Klopp's squad. Especially impressive was his performance in the 1-0 win away at Elland Road (ironically) a few weeks ago, in which he delivered a mature display; picking up loose balls, intercepting potential danger and distributing efficiently.