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GLOSSARY
of FINANCIAL TERMS
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Academic
Consultants
An advisory group initiated by the Board in the
1960s to provide a forum for the exchange of views between the Board
and members of the academic community in economics and banking. |
Acquirer
In an electronic money system, the entity or
entities (typically banks) that hold deposit accounts for merchants
and to which transaction data are transmitted. |
Acquisition
The process of buying or acquiring some asset.
The term can refer to the purchase of a block of stock or more
often, to the acquisition of an entire company. |
Adaptive Selling
A sales method where the offer is changed to
better match a prospective customer or situation. Online merchants
can take advantage of this through analysis of both general and user
specific patterns. |
Adjustable Rate
Mortgages (ARM)
A mortgage having an interest rate that varies
depending on the change in some outside standard such as prime rate,
interest rate on United States Treasury securities, or the Inflation
rate. The lender can increase or decrease the interest rate on the
mortgage at specified intervals based on changing market conditions.
The mortgage agreement specifies when the interest rate may change
and any limits imposed. |
Agreement
Corporation
An Agreement corporation is a federally or
state-chartered corporation that has entered into an agreement or
understanding with the Board that it will not exercise any power
that is impermissible for an Edge corporation. See also Edge Act
Corporation. |
Agricultural
Prices
An index prices received by farmers in the
market. The statistics is expressed as a percentage change from the
previous month. It is a useful predictor of price changes on the
grocery shelf, which are reflected in the consumer price index. See
also Consumer Price Index. |
Agricultural
Services
This industry includes forestry and fisheries, as
well as wages and salaries of U.S. residents employed by
international organizations, foreign embassies, and consulates in
the U.S |
Alternative
Financial Sector (AFS)
State-regulated financial sector serving
consumers who do not frequent banks or other mainstream financial
services. Check cashing outlets, pawnshops, refund-anticipation
loans and rent-to-own programs are all part of the alternative
financial sector. Also referred to as "fringe banking" and
"informal financial services" sector. |
Alternative
Payment Systems
Payment systems such as those based on stored
value cards, electronic currency, and debit or credit cards. These
are considered alternative channels to deliver traditional banking
and related products and services. See also Stored Value Card,
Electronic Cash, Debit Card, Credit Card. |
American National
Standards Institute (ANSI)
A non-profit organization that sponsors industry
standards for information management and financial communication.
The American Bankers Association has responsibility for the ANSI
financial industry standards committee (ANSI X9). See also
International Organization for Standardization. |
Amortization
The gradual and systematic reduction of debt by
equal periodic payments. Such payments generally must be sufficient
to recompense current interest due during the repayment period and
to repay the entire principal by the time the loan reaches maturity.
An amortization schedule is a table that shows the amounts of
principal and interest due at regular intervals, and the
corresponding unpaid principal balance at the time each installment
payment is made. See Also Debt, Interest, Principal. |
Annual Percentage
Rate (APR)
The rate required by Truth in Lending laws. It is
designed to show customers the total cost of credit, including the
stated interest rate plus certain finance and service charges. See
also Truth in Lending Act. |
Anonymous Payment
Mechanism
Protocols set up to protect the identity of a
buyer in transactions, thereby providing the electronic equivalent
of a cash transaction. |
Antidumping
Restrictions
A government regulation or law to prevent or
correct a dumping of products or services by multinational company
in foreign market. For example, the foreign country might outlaw a
particular multinational company engaging in such practice within
its borders. Alternatively, the foreign country might assess a very
high tariff on dumping and the resulting price disparity. |
Applicable Federal
Rates (AFR)
The statutory interest rate that must be charged
for most loans and installment agreements to avoid imputation of
income under the Internal Revenue Code. The Treasury Departments
determine three applicable federal rates monthly based on the
current market yields on outstanding obligations of the federal
government with similar maturities. The federal short-term rate is
applicable to transactions having terms of three years or less the
federal midterm rate is applicable to transaction having terms of
three to nine years, and the federal long-term rate is used for
transaction having terms in excess of nine years. See also Interest,
Loan, Installment Credit. |
Appraisal Fee
The charge for estimating the value of property
offered as security. |
Asset Allocation
A bank's funds management strategy in which funds
are assigned to securities and loan asset categories and then
reallocated as loan demand changes. |
Asset
Securitization
A process whereby loans, receivables and other
illiquid assets with similar characteristics in the balance sheet
are packaged into interest-bearing securities that offers attractive
investment opportunities. See also Loan. |
Assets for
Independence Act
(Public Law 105-285; 42 U.S.C. 604). Federal law
establishing a national Individual Development Account (IDA)
demonstration to determine how effective IDAs and asset-building
strategies are in helping low-income people save, acquire assets,
and achieve economic self-sufficiency. See also Individual
Development Account. |
Association for
Payment Clearing Services (APACS)
APACS is an organization, which is responsible in
the UK for matters relating to money transmission and payment
clearing activities generally. The are 23 members of APACS and three
autonomous clearing companies operating under the umbrella of APACS-
BACS Limited, CHAPS Clearing Company Limited and Cheque and Credit
Clearing Company Limited. |
Auction Market
Trading securities through exchange brokers with
buyers and sellers competing against one another to get the best
prices. The New York Stock Exchange is a prime example. |
Authentication
Identification of a bond certificate as having
been issued under a specific indenture, thereby validating the bond.
Also, legal verification of the genuineness of a document, as by the
certification and seal of an authorized public official. |
Automated Clearing
House (ACH)
A computer-based clearing and settlement
operation, often operated by a Federal Reserve Bank, established for
the exchange of electronic transactions among participating
depository institutions. Such electronic transactions can be
substituted for paper checks used to make recurring payments such as
mortgages, or in direct deposit distribution of federal and
corporate benefits payments including Social Security payments. The
U.S. Treasury uses the ACH extensively to pay certain obligations of
the government. |
Automated Loan
Machine (ALM)
Unmanned consumer loan origination machine that
resembles a stand-alone ATM in size. The unit consists of a
touch-screen personal computer, keyboard, MICR reader, printer,
modem, digital camera, and a digital signature pad. Consumers enter
their social security number and other vital data and declare how
much money they would like to borrow. The machine orders a credit
report and scores the consumer for qualification. If the borrower is
denied, a denial letter is generated. If the borrower is approved,
the unit asks which account to deposit the funds into (this can be
directly read from a check or deposit slip using the MICR reader),
deposits those funds via ACH credit, and books the loan on the banks
core system. See also Loan. |
Automated Teller
Machine (ATM)
It's computer terminal activated by a
magnetically encoded Bank Card, allowing consumers to make deposits,
obtain cash from checking or saving accounts, pay bills, transfer
money between accounts, and do other routine transactions as they
would at a bank teller window. ATMs can be programmed to dispense
bank statements, public assistance benefits, and cash checks to the
penny. Groups of banks sometimes share ATM networks located
throughout a region of the country that may include portions of
several states. See also Debit Card, Magnetic Stripe Card. |
Automatic Transfer
Service Account (ATSA)
A depositor's savings account from which funds
may be transferred automatically to the same depositor's checking
account to cover a check written or to maintain a minimum balance.
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Balance Inquiry
A basic function usually provided by home banking
programs by which consumers can use a phone, personal computer or
other electronic device to determine their balance of funds in a
bank account. |
Balance of
Payments
The record of a country's transactions in goods,
services, and assets with the rest of the world; also the record of
a country's sources (supply) and uses (demand) of foreign exchange. |
Balance of Trade
A country's merchandise exports minus its
merchandise trade balance. |
Balloon Mortgage
A mortgage in which the debt service (interest
and principal) that is paid regularly will not result in the
complete payment of the loan at the end of the mortgage term. The
payment that represents the amount of principal still due at the end
of the term is called the balloon payment. "To balloon" a
mortgage is to schedule the amortization payments over a longer
period than the term of the mortgage. See also Amortization, Balloon
Payment, Principal. |
Balloon Payment
A final lump-sum payment of unpaid principal
remaining at the end of a Balloon Payment and in certain types of
leases. The extra payment extinguishes the debt. See also Balloon
Mortgage, Principal. |
Bank
A financial business, chartered by the state or
federal government. Banks borrow money at one rate from individuals
and organizations that have excess cash. They then lend the money at
higher rates to entities that are in need of cash. In recent years
service charges have joined interest rate spreads as a major source
of bank revenue. |
Bank Examination
A periodic review of a bank's assets and
liabilities by chartering agency or bank supervisory agency. Bank
examiners focus their attention on three main areas: the competence
of bank management; the quality of bank assets, principally loans;
and compliance with state of federal banking regulation. See Also
Bank Supervision. |
Bank for
International Settlements (BIS)
An international organization, based in Basel,
Switzerland, that acts as a bank for central banks of major
industrial countries. Chartered in 1930 by a group of European
central banks, the BIS has evolved since the 1960s into an
influential monetary institution, assisting central bankers in
investing monetary assets. The Risk-Based Capital standard, adopted
by banks in Group of 10 countries by 1988, in which loans and other
bank assets are classified by risk, was formulated by central
bankers. The Federal Reserve Board of Governors regularly takes part
in BIS meeting, and other central banks. See also G-10 Countries,
Board of Governors. |
Bank Holding
Company (BHC)
A company that owns or controls one or more
banks. The Board of Governors has responsibility for regulating and
supervising bank holding companies, such as approving acquisitions
and mergers and inspecting the operations of such companies. This
authority applies even though a bank owned by a holding company may
be under the primary supervision of the Comptroller of the Currency
or the FDIC. See also Board of Governors, Comptroller of the
Currency, Federal Deposit Insurance Corporation. |
Bank Regulation
The formulation and issuance by authorized
agencies of specific rules or regulations, under governing law, for
the conduct and structure of banking. |
Bank Secrecy Act
A federal act requires banks to report cash
transactions that exceed $10,000 in any one day. The act also
requires certain records must be maintained (copies of checks paid,
deposits, and so on). The act is intended to inhibit laundering of
funds obtained through illegal activities. Every bank is required to
name a Bank Secrecy Compliance Officer. See Also Laundered Money |
Bank Supervision
Financial regulators' activities that focus on
the safety and soundness of individual banks, and involves in the
general and continuous oversight of the banking industry to ensure
that banks are operated prudently and in accordance with applicable
statutes and regulations. See also Bank examination. |
Bank Wire
An electronic communications network owned by an
association of banks and used to transfer messages between
subscribing banks. Bankwire also offers a clearing service called
Cashwire that includes a settlement facility. See also Fedwire. |
Bank-Owned
Community Development Corporation
A corporation, either for-profit or non-profit,
that is capitalized by one or more banks. It can be a subsidiary of
an individual bank or bank holding company, or a shared ownership
corporation among several banks; other financial institutions,
community-based organizations, and public and private investors.
Requirements and restrictions on a bank-owned CDC's structure and
activities vary according to its regulatory agency, although a CDC's
purpose must be to make debt and/or equity investments in projects
that promote community economic development. See also Community
Development Corporation. |
Bankers Acceptance
Bankers acceptances are negotiable time drafts,
or bills of exchange, that have been accepted by a bank which, by
accepting, assumes the obligation to pay the holder of the draft the
face amount of the instrument on the maturity date specified. They
are used primarily to finance the export, import, shipment, or
storage of goods. |
Banking Act of
1933
The first major banking legislation of the
Roosevelt administration, it created the Federal Deposit Insurance
Corporation to provide insurance of deposits of member banks. The
Act also provided for the regulation of banks, and limited branch
banking. Also known as the Glass-Steagall Act. See also FDIC, Glass-Steagall
Act. |
Banking Industry
Technology Secretariat (BITS)
It's a division of The Bankers Roundtable. The
BITS board is made up of the chairs of the ten largest BHCs and is
mandated to foster the growth and development of electronic banking
in an open environment. See also Electronic Banking. |
Bankruptcy
State of insolvency or an organization--in other
words, an inability to pay debts. There are two kinds of legal
bankruptcy under the U.S. law: involuntary, when one or more
creditors petition to have a debtor judged insolvent by a court; and
voluntary, when the debtor brings the petition. In both cases, the
objective is an orderly and equitable settlement of obligation. See
also Chapter 7, Chapter 11, Chapter 13. |
Barter
Trading goods or services for other goods or
services without using legal currency. |
Beige Book
A summary of commentary on current economic
conditions by Federal Reserve District. This report is published
eight times per year. Each Federal Reserve Bank gathers anecdotal
information on current economic condition in its Districts through
reports from Bank and Branch directors and interviews with key
business contacts, economists, market experts, and other sources.
The Beige Book summarizes its District and sector information. See
also Federal Reserve Bank. |
Bequest
It is a giving of assets, such as stocks, bonds,
mutual fundss, real estate, and personal property, to beneficiaries
through the provisions of a will. See also Will. |
Bill of Materials
Function
Ability to present predefined lists of items
routinely required by buyers for a specific purpose. |
Bill Payment
Service Provider
BPSPs offer a number of value added services to
the Biller industry. BPSPs offer a tremendous range of services as
outsourcing partners for their customers. Some typical services
offered include: Design, printing and inventory management of
statement forms and inserts, Printing, inserting, and mailing of
statements, integration of printing services with the Biller's
existing computer systems, receipt and processing of consumer
payments. |
Bill Presentment
An online system that allows customers to receive
and view the bill on a computer screen, and then pay the bill
electronically. Users can pay their bills immediately and the money
is transferred from their account. |
Bimetallism
A government's commission to exchange its
currency on demand for stated amounts of either of two metals,
usually gold or silver. Also bimetallic standard. Compared with
symmetallism. See also Symmetallism. |
Board of Governors
Central, governmental agency of the Federal
Reserve System, located in Washington, D.C., and composed of seven
members, who are appointed by the President and confirmed by the
senate. The Board of Governors is responsible for domestic and
international economic analysis; with other components of the
System, for the conduct of monetary policy; for supervision and
regulation of certain banking organizations; for operation of much
of the nation's payment system; and for administration of most of
the nation's laws that protect in credit transactions. See also
Monetary Policy, Payment System. |
Bond
A bond is a contract in which an issuer
undertakes to make payments to an owner or beneficiary when certain
events or dates specified in the contract occur. |
Book-Entry
One form in which Treasury and certain government
agency securities are held. Book-entry form consists of an entry on
the records of the US Treasury Department, a Federal Reserve Bank,
or a financial institution. |
Book-entry
Securities
Securities that are recorded in electronic
records, called book entries, rather than as paper certificates.
Ownership or U.S. government book-entry securities is transferred
over Fedwire. See Also Definitive Securities, Fedwire. |
Borrowed Reserves
Reserves that eligible depository institutions
obtain by borrowing from the Federal Reserve through discount
window. |
Borrower
Any legal entity that obtains funds from another
for a period of time. In the case of an extension of credit, the
borrower usually signs a note as evidence of the indebtedness. |
Broker's Loan
A loan that the originated sells to a third party
for a fee. The buyer of the loan bears the interest rate risk and
the default risk. |
Bubble
A speculative venture that has little chance of
making a profit. When this fact becomes evident, the bubble burst
and prices fall. |
Budget Deficit
The dollar amount of on-budget government
expenditures minus the dollar amount of government revenues. A
negative (positive) amount indicates that the government is
collecting less (more) than it is spending and is viewed as
stimulative for the U.S. and global economy. |
Business Cycle
The time period from the top of a Gross National
Product rise to the bottom of a fall and back to the base line. See
also Gross National Product. |
Business Incubator
A facility that provides below-market rents,
shared services, and technical assistance to new businesses. Tenants
typically include manufacturing, service, and technology firms.
Sponsors may be private developers, CDCs, public agencies, or
universities. |
Buydown
A lump sum payment made to the creditor by the
borrower or by a third party to reduce the amount of some or all of
the consumer's periodic payments to repay the indebtedness. See also
Borrower, Creditor, Debt.
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C
Call Center
Centralized customer service and sales
facility through which a majority (and sometimes all) of
customer calls are routed. The idea is to equip call center
staff with access to customer relationship information so they
can answer the customers' question on the first phone call,
significantly reducing the amount of research staff and
overhead a bank must support. This can either be run by the
bank itself or by a third party service provider on behalf of
the bank. |
Call Report
The informal name for Report of Condition
and Income. A quarterly report of income and condition
required by a financial institution's primary supervisory
agency: the Comptroller of the Currency for National Banks;
Federal Reserve Banks for state members; the Federal Deposit
Insurance Corp. for insured nonmember banks; or state banking
agencies for state chartered banks and trust companies. See
Report of Condition and Income. |
CAMELS
Rating
A rating sytem that measures of the
relative soundness of a bank. The components of the CAMELS
rating- stand for Capital, Assets, Management, Earnings,
Liquidity and Sensitivity to market risk. They are calculated
on a 1-5 scale, and are used by bank supervisory agencies to
evaluate bank condition. A rating of 1 is given to banks with
the strongest performance ratings, while banks given a CAMELS
rating of 4 or 5 are placed on the watch list of banks in need
of supervisory attention. Individual CAMELS ratings are
disclosed to bank management, though not to the general
public. See Also Capital Adequacy.. |
Capacity
Utilization
The ratio of units produced to the capacity
level of the production facility. A high ration reflects
manufacturing productivity. |
Capital
Adequacy
A requirement that the banks maintain
equity capital sufficient to protect depositors from losses
and support asset growth. Capital adequacy measures financial
leverage; as leverage increases less capital is available to
cover unexpected loss. Highly leveraged banks have more
volatile earnings than banks with adequate capital, and are
more closely monitored by banking regulations. See also CAMELS
Rating. |
Cash Flow
Cash available to an organization from its
business operations investments. A positive cash flow
indicates net operating income is sufficient to cover
expenses, while a negative cash flow means expenses are
growing faster than revenues. Lenders, when making loans to a
business, often look first at cash flow from operations before
collateral pledged by the borrower, as the primary source of
loan repayment; Flow of funds through a bank, an important
measure of its overall Liquidity, or ability to meet customer
demand for funds. It is usually summarized in a cash flow
report indicating a bank's sources of funds (mostly deposits)
and uses of funds (mostly loans). See also Flow of Funds,
Liquidity. |
Cease-and-Desist
Order
An order issued after notice and
opportunity for hearing, requiring a depository institution, a
holding company, or a depository institution official to
terminate unlawful, unsafe, or unsound banking practices.
Cease-and-desist orders are issued by the appropriate federal
regulatory agencies under the Financial Institutions
Supervisory Act and can be enforced directly by the courts. |
Certificate
Authority (CA)
An organization, such as a financial
institution or trusted third party, that issues and manages
the authenticity of digital certificates for use in electronic
commerce. |
Certificate
of Deposit (CD)
A form of time deposit at a bank or savings
institution; a time deposit cannot be withdrawn before a
specified maturity date without being subject to an interest
penalty for early withdrawal. Small-denomination CDs are often
purchased by individuals. Large CDs of $100,000 or more are
often in negotiable form, meaning they can be sold or
transferred among holders before maturity. See also Time
Deposit, Bank. |
Certificates
Printed documents issued by a corporation
as evidence of its obligation to the holders of the
certificates. Also called securities. See also Securities. |
Certified
Check
A check for which a bank guarantees
payment. When the check is certified, it legally becomes an
obligation of the banks, and the funds to cover it are
immediately from the depositor's account. |
Certified
Development Company
(also known as a 504 corporation) A
non-profit corporation that provides small businesses with ten
and twenty-year private Small Business Administration
guaranteed financing. The structure and activities of the CDC
must meet certain SBA guidelines, including a membership
representing public agencies, lenders, businesses, and
community-based organizations. See also Bank-Owned Community
Development Bank. |
CFMMI
See Chicago Fed Midwest Manufacturing Index |
Chapter 11
A provision of bankruptcy laws allowing a
bankrupt company to remain in business while its owners
attempt to pay its debts. See Bankruptcy. |
Chapter 13
Adjustments of debts of an individual with
regular income under the Federal Bankruptcy Code. Chapter 13
enables a debtor who is an individual to develop and perform a
plan for the prepayment of creditors over an extended period.
The plan might provide for full or partial repayment. Chapter
13 allows the debtor to retain his or her property, unless he
or she agrees otherwise in the plan. See Bankruptcy. |
Chapter 7
A provision of bankruptcy laws wherein a
company is require to liquidate its assets to pay of its
creditors. See Bankruptcy. |
Check
A demand deposit instrument (a draft)
signed by the maker and payable to a person named or to a
bearer upon presentation to the bank on which it is drawn. |
Check 21
The Check 21 Act facilitates truncation
through expanded use of electronic processing technologies to
improve the efficiency and reduce the cost of the nation’s
check collection system. The law provides for a new negotiable
paper instrument called a substitute check, which can be used
in place of the original paper check without an agreement.
This allows paper items to be truncated early in the
collection or return process, with image cash letters
replacing paper cash letters. |
Check
Cashing Outlet (CCO)
Businesses that cash government, payroll,
and unsecured personal checks for consumers. Additional
services may include payday loans, money orders, and wire
transfers. CCO growth has taken place in primarily
lower-income neighborhoods where traditional banking services
may be inaccessible or unavailable. The convenient locations
and extended business hours of check cashing outlets are
additional incentives for their use. Often, the fees charged
by CCOs may be greater than those charged by traditional
banking services. See Also Alternative Financial Sector,
Informal Financial Services. |
Check
Clearing
The movement of checks from the banks or
other depository institutions where they are deposited back to
those on which they are written, and funds movement in the
opposite direction. This process results in credits to
accounts at the institutions of deposit and corresponding
debits to the accounts at the paying institutions. The Federal
Reserve participates in check clearing through its nationwide
facilities, though many checks are cleared by private sector
arrangements. See also Clearing, Clearinghouse, Regional Check
Processing Center (RCPC). |
Check Kiting
A person writes a check without having
enough money in his or her account to cover it, but he or she
expects to be able to deposit the money before the check
reaches the bank. |
Check
Truncation
Practice of holding a paper check at the
bank at which it was deposited (or at intermediary bank) and
electronically forwarding the essential information on the
check to the bank on which it was written. A truncated check
is not returned to the writer. |
Chicago Fed
Midwest Manufacturing Index (CFMII)
The Chicago Fed Midwest Manufacturing Index
(CFMMI) is a monthly estimate of manufacturing output in the
Seventh Federal Reserve District by major industry. The
Midwest is defined as the five states comprising the District:
Illinois, Indiana, Iowa, Michigan and Wisconsin. It is a
composite index of 16 manufacturing industries that uses
electrical power and hours worked data to measure monthly
changes in regional activity. |
Chicago Fed
National Activity Index (CFNAI)
It is a monthly index designed to better
gauge overall economic activity and inflationary pressure. The
CFNAI, which is a weighted average of 85 existing monthly
indicators of national economic activity, is constructed to
have an average value of zero and a standard deviation of one.
Since economic activity tends toward trend growth rate over
time, a positive index reading corresponds to growth above
trend and a negative index reading corresponds to growth below
trend. |
Circuit
Breakers
It measures instituted by the major stock
and commodities exchanges to halt trading temporarily in
stocks and stock index futures when the market has fallen by a
specified amount in a specified period. Circuit breakers were
instituted after Black Monday in 1987 and modified following
another sharp market drop in October 1989. Their purpose is to
prevent a market free fall by permitting a rebalancing of buy
and sell orders. |
Clearing
A movement of checks from banks where they
are deposited back to those on which they were written, and
funds movement in the opposite direction. This results in
credit to the banks where funds are deposited and
corresponding debits to the accounts of paying institutions.
The Federal Reserve operates a nationwide check clearing
system, including numerous Regional Check Processing Centers.
See also Clearinghouse, Regional Check Processing Centers. |
Clearing
House Automated Payments System (CHAPS)
A private telecommunication and payment
system for interbank sterling payments operated by the London
clearing house for banks in the London area. |
Clearing
House Interbank Payments System (CHIPS)
An automated clearing system used primarily
for international payments. This system is owned and operated
by the New York Clearinghouse banks. The CHIPS system provides
settlement services for international commerce and trade
payments, foreign exchange trades and Eurodollar payments
among major U.S. and international banks. It engages Fedwire
for settlement |
Clearinghouse
An institution where mutual claims are
settled between accounts of member depository institutions.
Clearinghouses among banks have traditionally been organized
for check-clearing purposes, but more recently have cleared
other types of settlements, including electronic fund
transfers. See also Check Clearing. |
Co-Housing
A hybrid form of housing that combines
private and communal forms of living. Residents occupy
individual, complete housing units and share additional
kitchen, dining, and recreational facilities with other
residents. Ownership and design may take a variety of forms.
Limited equity cooperatives are a common form of urban
co-housing. |
Collaborative
Commerce (C-Commerce)
The collaborative, electronically enabled
business interactions among an enterprise's internal
personnel, business partners, and customers throughout a
trading community. The trading community could be an industry,
industry segment, supply chain or supply chain segment. |
Collateral
An asset such as an automobile or a piece
of property that a person uses to take out a loan, promising
to give the asset to the lender if loan payments cannot be
met. Collateral also refers to the collection of receivables,
such as mortgages, which are used to back the interest and/or
principal security. |
Commercial
Bank
A state bank or National Bank, owned by
stockholders, that accepts deposits and makes loans to
business, regardless of its other services. Commercial bank
deposits are insured by the Bank Insurance Fund, a federal
insurance fund managed by the Federal Deposit Insurance
Corporation. See also Federal Deposit Insurance Corporation,
Independent Bank; NonBank Bank. |
Community
Action Agency
A publicly and privately funded agency that
provides social services to lower-income residents in
surrounding communities, such as fuel assistance, daycare, and
education. CAAs may also be involved in the development and
management of affordable housing. |
Community
Bank
See Independent Bank |
Community
Development Block Grant (CDBG)
Flexible federal aid that is intended for
use by cities and towns to promote neighborhood
revitalization, economic development, and improved community
facilities and services. Specific uses of the funds are left
to the discretion of local governments. Funds are administered
by either state or city offices of economic development
depending on the size of the city or town (see Entitlement
Community.) |
Community
Development Corporation (CDC)
A community-based organization that is
owned and controlled by community residents and is engaged in
affordable housing, business and/or commercial development.
Although CDCs vary in size and scope, the vast majority are
non-profit, tax exempt 501(c)3 organizations. All CDCs have a
board of directors composed of local residents, public
officials, funders, bankers, relevant professionals, and/or
community leaders. See Also Bank-Owned Community Development
Corporation. |
Community
Development Credit Union (CDCU)
A non-profit credit union which is
chartered to serve the members of a lower-income community.
The structure is similar to a regular credit union, although
as a non-profit organization it is tax exempt. Federally
chartered CDCUs are regulated by the state. CDCU services vary
depending on their level of capitalization. In general, they
offer services not provided by mainstream financial
institutions such as small loans at below-market rates to
individuals who might not otherwise qualify for bank loans.
CDCUs rely heavily on banks, foundations, and other investors
for deposits to support their work. |
Community
Development Loan Fund (CDLF)
A private, non-profit organization that
channels private investment capital to community-based
organizations and projects. It may operate independently or as
part of a community-based organization. Lenders to the fund
may have some control over the term and rate of interest on
their loans, which are generally more flexible that
conventional financing, as well as the usage of their funds.
CDLFs can also provide borrowers with technical assistance to
reduce the chance of losses on higher risk loans. Since CDLFs
are not chartered or licensed, they have flexibility in their
organizational structure, although they may be subject to
state laws and regulations. In most cases, they are
incorporated as 501(c)(3) non-profits. |
Community
Land Trust (CLT)
A private non-profit corporation that
acquires and holds land in perpetuity to be developed for
specific community uses, primarily affordable housing. CLTs
control the terms of sale of all properties and improvements
on the land to maintain long-term interests, while allowing
leaseholders to retain general ownership rights of their
properties. CLTs are run by local residents, including
leaseholders on CLT-owned land. |
Community
Reinvestment Act (12 U.S.C. 2901) CRA
Federal law passed in 1977 to encourage
depository institutions to help meet the credit needs of the
communities in which they operate, including low- and
moderate-income neighborhoods, consistent with safe and sound
banking operations. The CRA requires that each insured
depository institution's record in helping meet the credit
needs of its entire community be evaluated periodically. That
record is taken into account in considering an institution's
application for deposit facilities, including mergers and
acquisitions. |
Community-Based
Organization
A non-profit organization that works to
serve the disadvantaged in the community in which it is based.
Services provided are varied and can include health,
education, housing, and employment training. |
Comptroller
of the Currency (OCC)
A chief regulator of national banks,
appointed by the President for a five-year term, with Senate
confirmation. The Office of the Comptroller of the Currency,
the supervisory agency for national chartered banks, is oldest
federal regulator of financial institutions. It is also an
officer of the Treasury Department responsible for chartering
national banks and has primary supervisory authority over
them. All national banks are required to be members of the
Federal Reserve System and are insured by the Federal Deposit
Insurance Corporation. See also Federal Deposit Insurance
Corporation, Federal Financial Institutions Examination
Council, Federal Reserve System. |
Consolidator
Consolidator provides electronic bill
payment of presentment. Internet banking ASPs and financial
websites contract with them to allow all their customers to
receive and pay bills online. |
Construction
This industry includes general building,
heavy construction, and special trade contractors. |
Construction
Expenditures
The total amount of new construction
spending expressed as percentage change from the previous
month. The total expenditure has two components: residential
expenditures and nonresidential expenditures. |
Construction
Loan
A short-term real estate loan to finance
building costs. The funds are disbursed as needed or in
accordance with a prearranged plan, and the money is repaid on
completion of the project, usually from the proceeds of a
mortgage loan. The rate is normally higher than prime, and
there is usually an origination fee. The effective yield on
these loans tends to be high, and the lender has a security
interest in the real property. |
Consumer
Advisory Council
A statutory body established by Congress in
1976. The Council, with 30 members who represent a broad range
of consumer and creditor interests, advises the Board on the
exercise of its responsibilities under the Consumer Credit
Protection Act and on other matters on which the Board seeks
its advice. See also Consumer Credit Protection Act of 1988. |
Consumer
Credit
Loan extended to individuals. Consumer
credit includes secured and unsecured installment and
revolving credit. Also call personal loans. See also Personal
Loan. |
Consumer
Credit Protection Act of 1988
Landmark federal legislation establishing
rules of disclosure that lenders must observe in dealings with
borrowers. The act stipulates that consumers be told annual
percentage rates, potential total cost, and any special loan
terms. The act, enforced by the Federal Reserve Bank, is also
known as the Truth in Lending Act. See also Finance Charge,
Truth in Lending Act. |
Consumer
Installment Credit
The net change in billions from the
previous month in consumer installment credit outstanding. The
peaks and troughs in business and consumer credit historically
precede business cycle extremes. |
Consumer
Leasing Act
Legislation passed in 1976 requiring
lessors to disclose specified information about payment,
trade-in allowance, and estimated value of property at the end
of the lease. |
Consumer
Price Index (CPI)
A measurement of the change in consumer
prices, as determined by a monthly survey of the U.S. Bureau
of Labor Statistics. Many pension and employment contracts are
tied to changes in consumer prices, as protection against
inflation and reducing purchasing power. Among the CPI
components are the costs of housing, food, transportation and
electricity. Also known as the cost-of-living index. |
Contract
An agreement by which right or acts are
exchanged for lawful consideration. To be valid, it must be
entered into by competent parties, must cover a legal and
moral transaction, must possess mutuality, and must represent
a meeting of minds. |
Cooperative
A form of housing in which residents form a
corporation for the purpose of owning and managing the
property collectively. Membership in the cooperative gives
them the right to occupy a unit and take part in the
management and operation of the building. Residents own shares
in the corporation proportional to their share of the
mortgage, rather than owning individual units. If a resident
leaves, the new resident purchases those shares and assumes
responsibility for part of the mortgage. |
Correspondent
Bank
A bank that accepts deposits of and
performs banking services for other depository institutions. |
Cost-burdened
Homeowners and Renters
Households are paying more than 30 percent
of their monthly gross income for housing. |
Cost-of-Living
Adjustment (COLA)
Adjustment of wages designed to offset
changes in the cost of living, usually as measured by the
Consumer Price Index. COLAs are key bargaining issues in labor
contracts and are politically sensitive elements of social
security payments and federal pension because they affect
million of people. |
Coupon
Interest rate payment on bond. |
Credit
Any money lent through loans and bonds or
money owed for the payment of goods and services. |
Credit Card
A plastic card authorizing the account
holder to charge purchases against a preapproved credit line.
Credit cards are issued by banks, thrift institutions,
retailers, gasoline companies, and other credit grantors. Many
card issuers change an annual fee to cover account servicing
costs. See also Debit Card, Magnetic Stripe. |
Credit
History
A record of how a person has borrowed and
repaid debts. |
Credit
Rating
A formal evaluation of an individual's or
company's credit history and capability of repaying
obligations. Any number of firms investigate, analyze, and
maintain records on the credit responsibility of individuals
and businesses. The credit rating is based on the number of
outstanding debts and whether debts have been repaid in a
timely manner in the past. |
Credit
Scoring System
A statistical system used to determine
whether or not to grant credit by assigning numerical scores
to various characteristics related to creditworthiness. |
Credit Union
A not-for-profit financial institutions
typically formed by employees of a company, a labor union, or
a religious group and operated as a cooperative. Credit Unions
may offer a full range of financial services and pay higher
rates on deposits and charge lower rates on loans than
commercial banks. Federally chartered credit unions are
regulated and insured by the National Credit Union
Administration. See also National Credit Union Administration. |
Creditor
A party that extends credit, such as a
trade supplier, a bank lender, or a bondholder. |
Creditworthiness
A creditor's measure of a consumer's past
and future ability and willingness to repay debts. See also
Credit; Credit History; Credit Rating. |
CRSO
See Customer Relations and Support Office |
Currency
The medium of exchange in a given country
consisting generally of bills (paper) and coins that is issued
by the government and designated as legal tender for the
payment of all obligations. |
Customer
Relations and Support Office (CRSO)
It oversaw and provided direction for a
Federal Reserve study of 10 community banks nationwide. It
presents information about their operations, their customers,
and the challenges they face in offering their products in a
competitive marketplace. |
Cyberbanking
Also referred to as electronic banking,
remote banking or online banking. Cyber is a derivative of a
term coined by D. N. Michael and First Union National Bank
around 1961 to refer to the use of computers to control
manufacturing operations. See also Electronic Banking; Home
Banking; Remote Banking. |
CyberCash
A commercially sponsored payments system by
which a user digitally purchases cash credits, stores them in
their computer, and then spends them when making electronic
purchases over the Internet. Most merchants accepting digital
cash use it an alternative to other forms of payment for
somewhat higher price purchases. See also Digital Cash. |
Cyclical
Stock
Securities such as those in automobile
manufacturing plants and real estate ventures that rise
quickly when the economy is on the upswing and fall when the
economy drops. Noncyclical stocks include those in companies
that product items people need no matter what the economy is
doing, such as food and drugs.
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Daylight
Overdraft
A negative balance created in an
account when payments made during business hours exceed
incoming funds actually received. The term also refers
to an overdraft in a bank's reserve account at the
Federal Reserve during business hours. |
De
Novo
A newly chartered bank, as opposed to
a bank acquired through a purchase acquisition or a
newly opened branch banking office. Banking expansion
can take place through chartering of new banks and
approval of new branch office by state banking
department, or through the acquisition of existing bank
(and banking offices). |
Debit
A bank account entry subtracting a
specific amount of money; the opposite of a credit. |
Debit
Card
A plastic card giving consumers
access to their funds electronically. Debit cards act
like checks when paying for goods and services or
withdrawing cash at automated teller machines. See also
Automated Teller Machine; Credit Card; Magnetic Stripe
Card. |
Debt
Money, goods, or services that one
party is obligated to pay to another in accordance with
an expressed or implied agreement. Debt may or may not
be secured; General name for bonds, notes, mortgages,
and other forms of paper evidencing amounts owed and
payable on specified dates or on demand. See also
Mortgage. |
Debt
Collection Improvement Act of 1996
Federal law within the Omnibus
Consolidated Rescissions and Appropriations Act of 1996
(Public Law 104-134) that aims to enhance debt
collection, as well as promote the use of electronic
funds transfer (EFT) in the delivery of federal
payments. |
Default
Failure of a debtor to make timely
payments of interest and principal as they come due or
to meet some other provision of a bond indenture. In the
even of default, bondholders may make claims against the
assets of the issuer in order to recoup their principal.
See also Debt, Interest, Principal. |
Definitive
Securities
Securities that are recorded on
engraved paper certificates payable to the bearers or to
specific, registered owners. See also Book-entry
Securities. |
Deflation
A drop in general price levels,
usually caused by increased demand for money that isn't
offset by an increased money supply, or a drop in the
money supply that isn't offset by a drop in the demand
for money. |
Demand
Deposit
An account balance which, without
prior notice to the bank, can be drawn on by check, cash
withdrawal from an automatic teller machine, or by
transfer to other accounts using the telephone or home
computers. Demand deposits are the largest component of
the U.S. money supply. And the principal medium through
which the Federal Reserve implements monetary supply. |
Department
of Housing and Urban Development HUD
A federal agency that funds numerous
programs designed to promote economic development and
affordable housing. Among the programs offered that can
be used in tandem with private money include home
mortgage insurance and Community Development Block
Grants. See also Community Development Block Grants. |
Department
of Veterans Affairs
A federal agency that provides, among
other services, guaranteed home loans for veterans. The
terms and rates of such loans are usually more favorable
that those of conventional home loans. |
Deposit
Ceiling Rates of Interest
Maximum interest rates that can be
paid on savings and time deposits at federally insured
commercial banks, mutual savings banks, savings and loan
associations, and credit unions. Ceilings on credit
union deposits are established by the National Credit
Union Administration. Ceilings on deposits held by the
other depository institutions are established by the
Depository Institutions Deregulation Committee (DIDC).
Under current law, deposit interest rate ceilings are
being phased out over a six-year period, ending in 1986
under the oversight of the DIDC. See also National
Credit Union Administration. |
Depository
Institutions Deregulation and Monetary Control Act of
1980 DIDMCA
Among its major provisions, this Act
applied uniform reserve requirements to all depository
institutions with certain types of accounts and required
reports from these depository institutions. It also
extended access to the Federal Reserve discount window
and to other Federal Reserve services in step with the
implementation of a fee schedule. See also Discount
Window, Reserve Requirements. |
Depository
Institutions Deregulation Committee DIDC
The Committee responsible for the
orderly phase-out over a six-year period of interest
rate ceilings on time and savings accounts at depository
institutions. Voting members of the DIDC are the
Secretary of the Treasury and the Chairmen of the
Federal Reserve Board, Federal Deposit Insurance
Corporation, Federal Home Loan Bank Board, and National
Credit Union Administration Board. The Comptroller of
the Currency serves as a nonvoting member. See also
Deregulation. |
Depreciation
The amount by which an asset's value
falls in a given period. |
Deregulation
Stopping or cutting down government
control over a particular industry in an effort to free
the market and promote competition. |
Derivative
A financial contract whose value is
determined from publicly trade securities, interest,
currency exchange rates, or market indexes. |
Devaluation
Lowering of the value of a country's
currency relative to gold and/or the currencies on other
nations. Devaluation can also result from a rise in
value of other currencies relative to currency of a
particular country. See also Currency. |
DigiCash
The largest electronic cash scheme
based on electronic coins. It uses blind signature to
protect the anonymity of the buyer. See also Digital
Cash. |
Digital
Cash
Money/monetary equivalents that can
be transmitted electronically, largely outside the
established payments system of banks, checks, and paper
currency overseen by the Federal Reserve. |
Digital
Signature
The electronic equivalent of a
person's unique writing of their own name, usually
performed today using public key cryptography. To create
a digital signature, a hash function is performed on a
message to create a unique message digest. The message
digest is then encrypted using the sender's private key;
the recipient decrypts the digest using the sender's
public key. The recipient uses the public key of the
sender to verify the authenticity of the sender, who
should be the only one possessing that private key. |
Digital
Wallet
Encryption software that conducts
secure transactions online in a fashion that resembles
using a physical wallet. A wallet can hold a user's
payment information, a digital certificate to identify
the user, and shipping information to speed
transactions. The consumer benefits because his or her
information is encrypted against piracy and because some
wallets will automatically input shipping information at
the merchant's site and will give the consumer the
option of paying by digital cash or check. Merchants
benefit by receiving protection against fraud. |
Direct
Deposit
An automatic deposit of wages or
benefits (such as payroll payments) into a consumer's
bank account. Direct Deposit payments are processed
through the Federal Reserve's Automated Clearing House.
See Also Automated Clearing House, Automatic Deposit. |
Discount
Rate
Interest rate that the Federal
Reserve charges member banks for loans, using government
securities or eligible paper as collateral. This
provides a floor on interest rates, since banks set
their loan rates a notch above the discount rate;
Interest rate use in determining the present value of
future cash flows. See also Capitalization Rate, Federal
Funds Rate, Prime Rate. |
Discount
Window
A place in the Federal Reserve where
banks go to borrow money at the Discount rate. Borrowing
from the Fed is a privilege, not a right, and banks are
discouraged from using the privilege except when they
are short of reserves. See also Discount Rate. |
Discount
Yield
A yield obtained by dividing a
security's discount by its face value, multiplying that
number by the approximate number of days in the year
(360), divided by the number of days left to maturity.
The figure provides the interest on a security's face
value instead of on the amount of money invested.
discount / face amount x 360 / days to maturity |
Dividends
The portions of a corporation's
profits that the firm pays out each period to
shareholders. Also called distributed profits. |
Domestic
Trading Desk (the Desk)
Trading desk, or Securities
Department, at the New York Federal Reserve Bank, which
is the operating arm of the Federal Open Market
Committee. The Desk executes all transactions undertaken
by the Federal Reserve System in the money market or the
government securities market, serves as the Treasury
Department's eyes and ears in these and related markets,
and encompass a foreign desk which conducts transactions
in the Foreign Exchange Market. See also Federal Open
Market Committee.
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Easing
Federal Reserve action to
increase the amount of credit available to the
public through the banking system; undertaken when
the economy needs to be stimulated. |
EBPP
See Electronic Bill Payment
& Presentment |
Econometric
Model
An empirical method of economic
forecasting that uses an equation based on
statistical relationship among economic variables,
such as housing starts and equipment purchases. |
Econometrics
Use of computer analysis and
modeling techniques to describe in mathematical
terms the relationship between key economic forces
such as labor, capital, interest rates, and
government policies, then test the effect of
changes in economic scenarios. For instance, an
econometric model might show the relationship of
housing starts and interest rates. |
Economic
Growth Rate
Rate of change in the Gross
National Product, as expressed in an annual
percentage. If adjusted for inflation, it is
called the real economic growth rate. Two
consecutive quarterly drops in the growth rate
mean recession, and two consecutive advances in
the growth rate reflect an expanding economic. |
Economic
Indicators
Key statistics showing the
direction of the economy. Among them are the
unemployment rate, inflation rate, utilization
rate, and balance of trade. See also Leading
Indicators. |
Economies
of Scale
The tendency for certain
classes of costs to decrease as a institution's
size or volume of business increases. |
Edge
Act Corporation
An organization chartered by
the Federal Reserve to engage in international
banking operations. The Board acts upon
applications by U.S. and foreign banking
organizations to establish Edge corporations. It
also examines Edge corporations and their
subsidiaries. The Edge corporation gets its name
from Senator Walter Edge of New Jersey, the
sponsor of the original legislation to permit
formation of such organizations. |
Electronic
Banking
A form of banking where funds
are transferred through an exchange of electronic
signals between financial institution, rather than
exchange of cash, checks, or other negotiable
instruments. The ownership of funds and transfers
of funds between financial institution are
recorded on computer systems connected by
telephone lines. Customer identification is by
access code, such as a password or Personal
Identification Number (PIN), instead of a
signature on a check or other physical document.
See also Cyber Banking, Home Banking, Remote
Banking. |
Electronic
Benefit Transfer
A system for electronic payment
of government-sponsored benefit programs, using
plastic cards and available point-of-sale (POS)
technology. See also Magnetic Stripe Card. |
Electronic
Bill Payment & Presentment EBPP
Internet based billing service
allowing consumers to view and pay credit card and
other retail bills online from a personal
computer. Consumers view their billing information
by logging onto their bank's Internet website,
decide what bills to pay, and authorize payment by
electronic mail. Funds are deducted electronically
from the consumer's checking account and cleared
through the Federal Reserve's Automated Clearing
House network. |
Electronic
Cash E-Cash
A system by which consumers can
transfer the digital equivalent of dollars and
cents (also referred to as digital cash) over the
Internet or other online connections to pay for
goods or information. Typically, this is
associated with low transaction values or is a
method used between individuals when the seller
does not accept credit cards. See Also
Micropayments. |
Electronic
Check
Electronic version of a paper
check, including date, payee name, payment amount,
and signature. Electronic checks (e-checks),
currently being tested by several large banks, are
meant for paying bills, transferring funds, or any
purpose where a paper check is used today. Checks
bear a digital signature security code proving
payment was authorized by the account holder. See
also Digital Signature. |
Electronic
Fund Transfer Systems EFTS
A variety of systems and
technologies for transferring funds (money)
electronically rather than by check. Includes
Fedwire, Bankwire, automated clearinghouses (ACHs),
and other automated systems. See also Automated
Clearing House, Bankwire, Fedwire. |
Electronic
Money
Monetary value measured in
currency units stored in electronic form on an
electronic device in the consumer's possession.
This electronic value can be purchased and held on
the device until reduced through purchase or
transfer. |
Electronic
Purse
A specific type of smart-card.
A chip in the card provides multiple payment
options such as debit, credit, and direct payment
from a stored balance. The electronic purse allows
for transactions with different merchants in many
locations. |
Electronic
Transfer Account ETA
An ETA is a low-cost account
which is made available by participating Federally
insured financial institutions to individuals who
receive Federal benefit, wage, salary, or
retirement payments. The account allows recipients
to receive Federal payments electronically in
accordance with the Electronic Funds Transfer (EFT)
provision of the Debt Collection Improvement Act
of 1996 (DCIA). The DCIA requires that Federal
payments, except for tax refunds and except where
waived by the Secretary of the Treasury, be made
electronically after January 1, 1999. |
Enterprise
Zone
An economically depressed area
that has been targeted for revitalization by a
city or state through tax and other incentives
given to companies that locate or expand their
operations within the zone. |
Entitlement
Community
A city or urban community with
a population of 50,000 or more which, because of
its size, receives Community Development Block
Grant funds directly from the federal government.
Non-entitlement communities receive CDBG funds
through the state office of economic development.
See also Community Development Block Grant. |
Equity
Grant
A grant generally provided by a
government agency, which reduces up-front
acquisition costs to a housing or commercial
development project. The grant can take a variety
of forms, such as a direct cash contribution, or
the contribution or reduced price sale of publicly
owned land or property. |
Eurodollars
Deposits denominated in U.S.
dollars at banks and other financial institutions
outside the United States. Although this name
originated because of the large amounts of such
deposits held at banks in Western Europe, similar
deposits in other parts of the world are also
called Eurodollars |
Exchange
Rate
Price at which one country's
currency can be converted into another's. The
exchange rate between the U.S. dollar and the
British pound is different from the rate between
the dollar and the West German mark. |
Expedited
Funds Availability Act EFAA
Federal law enacted by Congress
in 1987 limiting holds on checks deposited into a
bank account, and requiring banks and other
depository financial institutions to follow a
uniform funds availability schedule in processing
checks or drafts deposited into an account. Under
the EFAA, the first $100 of a check is to be
available for use at the opening of business the
day after the deposit is made; the remaining funds
on the second day after the deposit if payable by
a local bank, and within five days if drawn on
more distant banks. |
Expiring
Use Restrictions
The contractual right which
owners of low- and moderate-income rental housing
have to prepay their publicly assisted mortgage
and convert their property to market rate housing. |
Exponential
Market
Where one party can be both a
buyer and a seller.
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Farm
The farm industry
comprises all wages of hired farm labor, the
pay-in-kind of hired farm labor, and the
salaries of officers of corporate farms. |
Fed
Wire
Fedwire, the Federal
Reserve's funds and securities transfer
service is the primary electronic transfer
system in the United States. It connects
Federal Reserve Banks and Branches, U.S.
government agencies such as Treasury, and
depository institutions. All Fedwire
transfers are completed on the day they are
initiated. They are guaranteed final by the
central bank when the receiving institution
is notified of the credit to its account. |
Federal
Advisory Council FAC
This group consists of
one member from each Federal Reserve
District (usually a banker) elected annually
by the Board of Directors of each of the 12
Federal Reserve Banks. They meet with the
Board to discuss business and financial
conditions and make advisory
recommendations. |
Federal
Deposit Insurance Corporation FDIC
Agency of the federal
government that insures accounts at most
commercial banks and mutual savings banks.
The FDIC also has primary federal
supervisory authority over insured state
banks that are not members of the Federal
Reserve System. See also Banking Act of
1933, Glass-Steagall Act. |
Federal
Financial Institutions Examination Council FFIEC
An interagency group of
federal banking regulator formed in 1979 to
maintain uniform standards for the federal
examination and supervision of federally
insured depository institutions, bank
holding companies, and savings and loan
holding companies. Its members are OCC, the
chairman of the FDIC, a member of Board of
Governors of the Federal Reserve System, the
chairman of the National Credit Union. The
council also produces the Uniform Bank
Performance Report. See also Comptroller of
the Currency, Board of Governors, Federal
Deposit Insurance Corporation, Federal Home
Loan Bank Board, National Credit Union,
Uniform Bank Performance Report. |
Federal
Funds
Funds deposited by
commercial banks at Federal Reserve Banks,
including funds in excess of bank reserve
requirements. Banks may lend federal funds
to each other on an overnight basis at the
federal funds rate. Member banks may also
transfer funds among themselves or on behalf
of customers on a same-day basis by debiting
balances in the various reserve banks. See
Fed Wire. |
Federal
Funds Rate
Interest rate charged by
banks with excess reserves at a Federal
Reserve district bank to banks needing
overnight loans to meet reserve
requirements. The federal funds rates is the
most sensitive indicator of the direction of
interest rates, since it is set daily by the
market, unlike the Prime Rate and the
Discount Rate, which are periodically
changed by banks and by the Federal Reserve
Board. See also Fedwire, Discount Rate,
Prime Rate. |
Federal
Home Loan Bank Board FHLBB
The agency of the federal
government that supervises all federal
savings and loan associations and federally
insured state-chartered savings and loan
associations. The FHLBB also operates the
Federal Savings and Loan Insurance
Corporation, which insures accounts at
federal savings and loan associations and
those state-chartered associations that
apply and are accepted. In addition, the
FHLBB directs the Federal Home Loan Bank
System, which provides a flexible credit
facility for member savings institutions to
promote the availability of home financing.
The FHL Banks also own the Federal Home Loan
Mortgage Corporation, established in 1970 to
promote secondary markets for mortgages. |
Federal
Housing Administration FHA
An agency of the U.S.
Department of Housing and Urban Development
that insures home mortgage loans originated
by approved lenders to borrowers who do not
meet conventional underwriting criteria. See
also Department of Housing and Urban
Development. |
Federal
National Mortgage Association Fannie
Mae
A congressionally
chartered private agency that purchases home
mortgage loans not insured by the FHA or
guaranteed by the VA from originating
financial institutions. The loans are either
kept in portfolio or packaged and sold as
securities. Fannie Mae also offers programs
for lower-income homebuyers that have more
flexible underwriting guidelines. |
Federal
Open Market Committee FOMC
A 12-member committee
consisting of the seven members of the
Federal Reserve Board and five of the twelve
Federal Reserve Bank presidents. The
president of the Federal Reserve Bank of New
York is a permanent member while the other
Federal Reserve presidents serve on a
rotating basis. The Committee sets
objectives for the growth of money and
credit that are implemented through
purchases and sales of US government
securities in the open market. The FOMC also
establishes policy relating to System
operations in the foreign exchange markets. |
Federal
Reserve Act of 1913
Federal legislation that
established the Federal Reserve System. |
Federal
Reserve Bank
One of the twelve
operating arms of the Federal Reserve
System, located throughout the nation, that
together with their twenty-five Branches
carry out various System functions,
including rating a nationwide payments
system, distributing the nation's currency
and coin, supervising and regulating members
and bank holding companies, and serving as
banker of the U.S. Treasury. |
Federal
Reserve Float
Checkbook money that for
a period of time appears on the books of
both the payor and payee due to the lag in
the collection Process. Federal Reserve
float often arises during the Federal
Reserve's check collection process. In order
to promote an efficient payments mechanism
with certainty as to the date funds become
available, the Federal Reserve has employed
the policy of crediting the reserve accounts
of depository institutions depositing checks
according to an availability schedule before
the Federal Reserve is able to obtain
payment from others. |
Federal
Reserve Notes
Nearly all of the
nation's circulating paper currency consists
of Federal Reserve notes printed by the
Bureau of Engraving and Printing and issued
to the Federal Reserve Banks which put them
into circulation through commercial banks
and other depository institutions. Federal
Reserve notes are obligations of the US
government. |
Federal
Reserve System FRS
The central bank of the
United States created by Congress,
consisting of a seven member Board of
Governors in Washington, D.C., 12 regional
Reserve Banks, and depository institutions
that are subject to reserve requirements.
All national banks are members;
state-chartered banks may elect to become
members, and state members are supervised by
the Board of Governors and the Reserve
Banks. Reserve requirements established by
the Federal Reserve Board apply to nonmember
depository institutions as well as member
banks. Both classes of institutions have
access to Federal Reserve discount borrowing
privileges and Federal Reserve services on
an equal basis. |
Finance
Charge
Cost of credit, including
interest paid by a customer for a consumer
for a consumer loan. Under the Truth in
Lending Act, the finance charge must be
disclosed to the customer in advance. See
also Consumer Credit Protection Act of 1988. |
Financial
Accounting Standard Board FASB
A panel of certified
public accountants that review and offers
opinions on bookkeeping practices, with most
companies following the board's
recommendations when putting together their
financial statements and reports. See also
Generally Accepted Accounting Principles. |
Financial
Institution
An institution that uses
its funds chiefly to purchase financial
assets (deposits, loans, securities) as
opposed to tangible property. Financial
institutions can be classified according to
the nature of the principal claims they
issue: nondeposit intermediaries include,
among others, life and property/casualty
insurance companies and pension funds, whose
claims are the policies they sell, or the
promise to provide income after retirement;
depository intermediaries obtain funds
mainly by accepting deposits from the
public. See also Bank, Savings Bank. |
Financial
Services Technology Consortium FSTC
A not-for-profit
organization whose goal is to enhance the
competitiveness of the United States
financial services industry. Members of the
consortium include banks, financial services
providers, research laboratories,
universities, technology companies, and
government agencies. |
First
Accounts
Initiative of the U.S.
Treasury Department funded during the
Clinton administration that aims to promote
financial literacy programs. |
Fiscal
Agency Services
Services performed by the
Federal Reserve Banks for the US government.
These include maintaining deposit accounts
for the Treasury Department, paying US
government checks drawn on the Treasury, and
issuing and redeeming savings bonds and
other government securities. |
Fixed
Rate
A traditional approach to
determining the finance charge payable on an
extension of credit. A predetermined and
certain rate of interest is applied to the
principal. See also Interest, Principal. |
Flow
of Funds
Quarterly Federal Reserve
survey showing the movement of funds between
different sectors of the economy-households,
business, governments, and financial
institutions. The survey "Flow of Funds
Accounts" is reported monthly in the
Federal Reserve Bulletin and is a useful
indicator of buying preference of
institutional investors; Statement in the
bond resolution of a municipal bond issuer
stating how municipal revenues are to be
applied, generally giving priority to
maintenance and operations, and bond debt
service. See Also Cash Flow. |
Foreign
Exchange Rate
Price of the currency of
one nation in terms of the currency of
another nation. |
Foreign
Exchange Transactions
Purchase or sale of the
currency of one nation with that of another.
Foreign exchange rates refer to the number
of units of one currency needed to purchase
one unit of another, or the value of one
currency in terms of another. |
Foreign
Fee
An ATM fee, assessed by
the card issuing bank for customer's use of
non-proprietary machines (averages around
$1). This fee helps recoup interchange fees
and also contributes to profits. |
Forward
Exchange Rate
Price quoted for delivery
of a currency beyond the spot delivery date,
or delivery in two business days. The
forward rate may be quoted with a discount
(forward discount) or with a premium
(forward premium), depending on interest
rate market demand, and so on, or as an,
outright forward transaction without an
offsetting purchase or sale in the spot
market. |
Fraud
Intentional
misrepresentation, concealment, or omission
of the truth for the purpose of deception or
manipulation to the detriment of a person or
an organization. Fraud is a legal concept an
the application of the term in a specific
instance should be determined by a legal
expert. |
FRCS-80
The communications
network of the Federal Reserve which
interconnects Federal Reserve Bank offices,
the Board of Governors, depository
institutions, and the Treasury. It is used
for Fedwire transfers, transfers of US
securities, as well as for transfer of
Federal Reserve administrative, supervisory,
and monetary policy information. |
Fringe
Banking
See Alternative Financial
Sector, Alternative Financial Sector,
Informal Financial Services. |
Full
Employment and Balanced Growth Act of 1978
Federal legislation that,
among other things specifies the primary
objectives of U.S. economic policy-maximum
employment, stable prices, and moderate
long-term interest rates. See
Humphrey-Hawkins Act. |
Functional
Cost Analysis FCA
A study based on data
submitted by the individual banks to the
Federal Reserve System to compare various
asset, income, and cost ratios. |
Funds
Transfer
The internal movement of
funs between accounts; The external movement
of funds between banks. The complete
movement of between the originator and the
beneficiary consist of one or more funds
transfer transactions. Seel Also called Wire
Transfer. |
Futures
Contracts that require
delivery of a commodity of specified quality
and quantity, a specified price, on a
specified future date. Commodity futures are
traded on a commodity exchange and are used
for both speculation and hedging. |
Futures
Contract
Agreement to buy or sell
a specific amount of a commodity or
financial instrument at a particular price
in a stipulated future month. The price is
established between buyer and seller on the
floor of a commodity exchange, using the
open outcry system. A futures contract
obligates the buyer to purchase the
underlying commodity an the seller to sell
it, unless the contract is sold to another
before settlement date, which may happen if
a trader waits to take a profit or cut a
loss. This contrasts with options trading,
in which the option buyer may choose whether
or not to exercise the option by the
exercise date. See also Futures Market. |
Futures
Market
The market for trading
contracts for the future settlement of
foreign exchange, commodities, or financial
instruments.
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| G |
G-10
(Group of Ten) Countries
Organizations of
central banks of the major industrial
countries. Member banks coordinate
banking industry supervision through
the Bank for International Settlements
and monetary policy through the
International Monetary Fund. Founding
members are central bank from Belgium,
Canada, France, Germany, Italy, Japan,
the Netherlands, Sweden, the United
Kingdom, and the United States.
Switzerland has also joined as a
full-fledged member. See also
International Monetary Fund. |
G-24
(Group of Twenty-four)
See Organization
For Economic Cooperation and
Development (OECD). |
G-5
(Group of Five) Countries
The United States,
Germany, Japan, France. and England. |
G-7
(Group of Seven) Countries
A international
group comprised of finance ministers
of the seven leading industries
democracies who meet to coordinate
economic and monetary policy. The
group are Japan, Germany, France,
Italy, Britain, Canada, and the United
States. |
Game
theory
A theory of
individual rational decisions taken
under conditions of less than full
information concerning the outcomes of
those decisions. |
Garnishment
A notice to an
employer or other asset holder
requiring that monies, wages, or
property due a debtor be withheld and
given a creditor to be applied to a
specific debt in arrears. |
Generally
Accepted Accounting Principles GAAP
Conventions, rules,
and procedures that define accepted
accounting practice, including broad
guidelines as well as detailed
procedures. The basic doctrine was set
forth by the Accounting Principles
Board of the American Institute of
Certified Public Accountants, which
was superseded in 1973 by the
Financial Accounting Standards Board (FASB),
an independent self-regulatory
organization. See Also Financial
Accounting Standards Board. |
Glass-Steagall
Act
A portion of the
Federal Banking Act of 1933 primarily
concerned with the separation of
commercial and investment banking. It
prohibited commercial banks from
securities underwriting and mandated
that the Federal Reserve establish
interest rate ceilings on certain
balance sheet items. It also
established the FDIC. See also Banking
Act of 1933, Federal Deposit Insurance
Corporation. |
Government
National Mortgage Association Ginnie
Mae
A part of the U.S.
Department of Housing and Urban
Development that guarantees
mortgage-backed securities and manages
a portfolio of federally-owned
mortgages. Ginnie Mae does not
purchase loans. |
Graduated
Payment
Repayment terms
calling for gradual increases in the
payments on a closed-end obligation. A
graduated payment loan usually
involves negative amortization. See
also Amortization. |
Grameen
Bank
Microcredit
organization that provides credit
without use of collateral to the poor
in rural Bangladesh. Lending is made
to promote small business and
community development. |
Gramm-Leach-Bliley
Act of 1999
A federal
legislation that removed
Depression-era Glass prohibitions of
the Glass-Steagall Act barring
cross-ownership of banks, securities
firms, and insurance companies.
Commercial banks are now permitted to
own insurance companies and engage in
securities underwriting through
federally regulated subsidiaries. A
complex piece of legislation, the act
marks the culmination of efforts
dating to the early 1980s to modernize
the U.S. financial services industry. |
Grandfathered
Activities
Nonbank activities,
some of which would normally not be
permissible for bank holding companies
and foreign banks in the United
States, but which were acquired or
engaged in before a particular date.
Such activities may be continued under
the "grandfather" clauses of
the Bank Holding Company Act and the
International Banking Act. |
Gresham's
Law
Sir Thomas Gresham,
an English economist, theorized that
if a country has two forms of
currency, citizen will hoard the
currency with the higher intrinsic
value, thus forcing the other currency
out of circulation. |
Gross
Domestic Product GDP
A country's total
output of goods and services from all
forms of economic activity measured at
market prices for a calendar year. See
also Economic Growth Rate. |
Gross
National Product GNP
Total value of
goods and services produced in the
economy. |
Guarantor
The person or legal
entity who makes a guaranty. See also
Guaranty. |
Guaranty
A term used to
refer contract in which one person
becomes liable to perform a specific
act or duty for another upon that
person's failure to perform. A
guarantor promises either that another
person will perform his or her duty or
that, if the other person does not
perform his or her duty, the promisor
will. Nonperformance by the other
person is a condition precedent to the
guarantor's duty to pay or perform.
See also Guarantor.
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| H |
Hedge
A measure
used to offset losses or
potential losses. For example,
gold and oil often are used as
investments to hedge, or offset,
inflation. |
Hedge
Fund
Fund that has
relatively unregulated
investment partnership. With
limited restrictions, fund
managers can seek high rates of
return by increasing financial
leverage, taking both long and
short positions, and trading
complex derivatives. Typically,
management has an
incentive-based contract where
fees vary directly with fund
profitability. |
Hedging
Taking action
to neutralize risk. Investors,
dealers, and bankers hedge in
various markets, including the
stock, option, foreign exchange,
and commodity markets. Hedging
entails controlling the risk of
one transaction by engaging in
an offsetting transaction. |
Herfindahl-Hirschman
Index HHI
A
mathematical calculation that
uses market share figures to
determine whether or not a
proposed merger will be
challenged by the government. |
Home
Banking
Banking
transactions that retail
customers can perform from their
homes or offices. Services
typically include obtaining the
current balance in a checking or
savings account, moving funds
between accounts at the
financial institution, and
paying bills. Sometimes services
include purchases of deposit or
mutual fund shares, and applying
for loans. Customers can use
telephones, screen phones, or
PCs, depending on how the
services are structured. Also
referred to as cyberbanking,
electronic banking, remote
banking or online banking. See
also Cyberbanking, Electronic
banking, Remote Banking. |
Home
Mortgage Disclosure Act of 1975 HMDA
A federal law
requiring certain depository
institutions to disclose the
amount and location of their
home mortgage activities to the
public and government officials.
This act is governed by
Regulation C of the Federal
Reserve System and administered
by the applicable regulation
agency. |
Home
Ownership and Equity Protection
Act of 1994
(HOEPA) (15
U.S.C. 1639) (Reg. Z) Federal
law that regulates high-cost
loans. See Also Regulation Z and
Truth in Lending. |
Homesteading
A process
whereby residents of
municipally-owned properties are
allowed to purchase their units
at a nominal price. |
Housing
Partnership
A non-profit
organization that brings
together the interests,
resources, and financial support
of public agencies, local
businesses, banks, and
community-based organizations to
increase the supply of
affordable housing in a
particular city or state. HPs
generally work with local CDCs
to design and implement
projects, and assume
responsibility for securing
financing and providing
technical assistance to the
project. See also Community
Development Corporation. |
Housing
Starts
Award of a
building permit for construction
of new residential multifamily
and single family housing. The
volume of housing starts,
gauging consumer demand for
residential mortgages, is one of
the 12 leading economic
indicators compiled by the U.S.
Department of Commerce. |
Housing
Trust Fund
A fund
established by state legislation
or a city ordinance that uses
public capital to finance the
construction or renovation of
affordable housing. The fund is
designed to have an ongoing
source of revenue, usually from
tax or program- generated
revenue, or from development
ordinance requirements. HTFs are
typically administered by a
public agency. |
Humphrey-Hawkins
Act
Informal name
for the Full Employment and
Balance Growth Act of 1978, from
the names of the original
sponsors. See also Full
Employment and Balance Growth
Act of 1978.
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| I |
Inclusionary
Zoning
A
zoning ordinance that
requires a developer to
include affordable housing
(or its funding) as part
of the development.
Typically, a developer
makes a certain percentage
of the units affordable in
exchange for a density
bonus. |
Independent
Bank
A
locally owned and operated
commercial bank. It
derives its sources of
funds from, and it lends
money to the community
where it operates, and is
not affiliated with a
multibank holding company.
Also called community
bank. See also Community
Bank. |
Index
Fund
A
mutual fund that invests
in stocks that reflect the
composition of one of the
leading market indicators,
such as Standard &
Poor's 500 index. The
intention is to mirror
market performance. |
Individual
Development Account IDA
Special
savings accounts for
low-income families often
restricted to first home
purchase, higher
education, or small
business capitalization. A
portion of the deposited
funds are matched by one
or more of the following
institutions: federal and
state government, banks
and credit unions,
community-based
organizations,
foundations, and churches.
Families saving in an IDA
program receive the help
of a non-profit
organization that usually
requires financial
literacy training. |
Industrial
Production
Monthly
statistic released by the
Federal Reserve Board on
the total output of all
U.S. factories and mines.
These numbers are a key
economic indicator. See
also Economic Indicator. |
Inflation
Rise in
the prices of goods and
services, as happens when
spending increase relative
to the supply of goods on
the market. Moderate
inflation is a common
result of economic growth.
Hyperinflation, with
prices rising at 100% a
year or more, causes
people to lose confidence
in the currency and put
their assets in hard
assets like real estate or
gold, which usually retain
their value in
inflationary times. |
Information
Contract
A
formal agreement that is
executed between a website
host and an individual
consumer. This arrangement
details exactly what
information the host site
intends to collect from
the consumer, what uses
will be made of that data,
and the compensation to be
paid the consumer for the
use of that data. The
contract should provide
the consumer with an
ability to opt out of the
arrangement. |
Initial
Public Offering IPO
Stock
issued by a firm that is
going public for the first
time. As such, the firm's
stock has never trade
previously. |
Installment
Credit
A loan,
extended by financial
institution or retail
firms, to be repaid along
with interest charge in
fixed periodic payments
or, if variable rate of
interest is charged, to be
repaid in amounts that
vary with the interest
charged. |
Interchange
Fee
Charge
levied by the ATM/POS
terminal owner against
another institution whose
customer has used that
device. Fees vary by type
of transaction activity:
transfer, withdrawal,
inquiry (lowest), and
deposit (highest). |
Interest
The
amount of money a lender
loans a borrower to pay
for using the borrower's
principal. |
Interest
Subsidy
A
subsidy, usually
government-sponsored,
which reduces the interest
a borrower is required to
pay on a loan. The subsidy
can take one of three
forms: a direct cash grant
to a lending institution
to write-down the bank's
interest rate on a
business or housing loan;
a government-sponsored,
low-interest loan
subordinated to a
participating lender; or a
lower-than-market-rate
loan to a qualified
borrower as a result of an
advance or pass-through
provision from a public
entity. Projects that
qualify for such subsidies
are deemed to provide some
public benefit. |
International
Bank for Reconstruction
and Development
IBRD
An
organization that provides
loans for economic
development to member
countries when private
funds are unavailable. It
was founded at the
economic conference held
at Bretton Woods in 1944
and began operations in
1946. Also called the
World Bank. The World Bank
works closely with
International Monetary
Fund (IMF) and has 149
member countries. The
World Bank finances its
operation through member
subscriptions, sale of its
securities, and net
earnings. |
International
Banking Facility IBF
In
general, these facilities
can accept time deposits
from foreign customers
free of reserve
requirements and interest
rate limitations, and can
lend to foreigners if the
funds are for the conduct
of foreign business
outside of the U.S. Net
borrowing from these
facilities by domestic
banking offices is subject
to reserve requirements. |
International
Monetary Fund
An
international organization
with 146 members,
including the United
States. The main functions
of the International
Monetary Fund are to lend
funds to member nations to
finance temporary balance
of payments problems, to
facilitate the expansion
and balanced growth of
international trade, and
to promote international
monetary cooperation among
nations. The IMF also
creates special drawing
rights (SDRs), which
provide member nations
with a source of
additional reserves.
Member nations are
required to subscribe to a
Fund quota, paid mainly in
their own currency. The
IMF grew out of the
Bretton Woods Conference
of 1944. See also G-10
(Group of Ten) Countries. |
International
Organization for
Standardization ISO
It's an
organization acting as a
central clearinghouse for
industry standards drafted
by national standard
setting organizations. The
American National
Standards Institute is the
U.S. representative of
ISO. |
Internet
Banking
Financial
services accessed via the
Internet's World Wide Web.
Banks use the Internet to
deliver information about
financial services,
replace transactions done
in branch offices, which
eliminates the need to
build new branches, and to
service customers more
efficiently. Internet
banking sites offer the
prospect of more
convenient ways to manage
personal finances, and
such services as paying
bills online, finding
mortgage or auto loans,
applying credit cards, and
locating the nearest ATM
or branch office. |
Issuer
A
financial institution or
other organization
responsible for supplying
credit cards, debit
accounts, checks,
electronic tokens, and so
on. An issuer sets the
card or account holder's
credit limit, pays or
redeems transactions or
balances presented, and
funds the free credit
period and any extended
credit.
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| J |
Jumbo
Certificate of
Deposit
A
certificate with a
minimum denomination
of $100,000. Jumbo
CDs are usually
bought and sold by
large institutions
such as banks,
pension funds, money
market funds, and
insurance companies.
See also Certificate
of Deposit. |
Junk
Bond
A
form of bond that,
because of its very
low credit rating or
no credit rating at
all, is considered a
high-risk investment
and consequently
carries a high
interest rate. Junk
bonds have become
increasingly popular
in recent years in
financing corporate
transactions such as
leveraged buyouts.
| K |
Keogh
Plan
A
retirement
plan for
self-employed
people and
their
employees, to
yearly tax
deductible
contributions
up to a
specified
limit can be
made if the
plan meets
certain
requirements
of the
Internal
Revenue Code. |
Keynesian
A
term used to
describe the
economic
theories of
John Maynard
Keynes. A key
feature of
those theories
is the
assumption
that fiscal
policies are
important
determinants
of short- run
economic
activity.
| L |
Labor
Force
The
number
of
people
employed
plus the
number
of
unemployed |
Labor
Market
The
input/factor
market
in which
households
supply
work for
wages to
firms
that
demand
labor. |
Labor
Productivity
Output
per
worker;
the
amount
of
output
produced
by an
average
worker
in one
hour. |
Lagging
Indicator
An
economic
data
series
that
consistently
moves
with
overall
activity
but
turns up
or down
later
that
general
economy. |
Land
Bank
A
public
agency
which
provides
below-market
financing
for the
purchase
or
refinancing
of
undeveloped
land for
the
purpose
of
developing
affordable
housing
and
economic
revitalization
projects. |
Large-dollar
Funds
Transfer
System
A
funds
transfer
system
through
which
large-dollar
and
high-priority
funds
transfers
are made
between
participants
in the
system
for
their
own
account
or on
behalf
of their
customers.
Sometimes
known as
wholesale
funds
transfers
systems. |
Laundered
Money
Deposit
of funds
that is
sent
through
numerous
accounts,
one
after
another,
in an
attempt
to
conceal
the
original
source
of the
money.
See Also
Money
Laundering. |
Leading
and
Lagging
Making
cross-border
payments
from one
subsidiary
to
another
either
ahead of
schedule
(leading)
or
behind
schedule
(lagging)
as a
means of
moving
liquidity
from one
entity
to
another. |
Leading
Indicators
Components
of an
index
released
monthly
by the
U.S.
Commerce
Department's
Bureau
of
Economic
Analysis.
A
measure
used to
predict
the
financial
condition
and
stability
of a
particular
industry
or the
economy
in
general,
represented
by such
indicators
as the
unemployment
rate.
The
index of
leading
indicators,
the
components
of which
are
adjusted
for
inflation,
has
accurately
forecast
ups and
downs in
the
business
cycle.
Official
full
name:
Composite
Index of
11
Leading
Indicators.
See also
Economic
Indicators. |
Lease
Financing
A
specialized
area of
finance
dealing
with
renting
property
owned by
a
lender,
financing
the
leases
of a
company
engaged
in
rentals,
financing
the
purchase
of an
item to
be
leased
out by a
borrower. |
Lender
of Last
Resort
The
Federal
Reserve,
as the
nation's
central
bank,
has the
authority
and
financial
resources
to act
as
"lender
of last
resort"
by
extending
credit
to
depository
institutions
or to
other
entities
in
unusual
circumstances
involving
a
national
or
regional
emergency;
particularly
where
failure
to
obtain
credit
would
have a
severe
adverse
impact
on the
economy. |
Letter
of
Credit
A
document
issued
by a
financial
institution
on
behalf
of a
buyer
stating
the
amount
of
credit
the
buyer
has
available,
and that
the
institution
will
honor
drafts
up to
that
amount
written
by the
buyer.
It gives
the
buyer
the
prestige
and
financial
backing
of the
issuing
institution
and
satisfies
the
requirements
of the
seller
in
completing
the
transaction.
The
accepting
institution
has a
prior
agreement
as to
how the
buyer
will pay
for the
drafts
as they
are
presented. |
Leveraged
Buy Out LBO
A
person,
company,
group of
company
employees,
or
entity
that
borrows
money to
buy
controlling
interest
in a
company.
This is
a
usually
done by
using
the
company's
assets
as
security
for the
loans
taken
out by
the
acquiring
party
and
repaying
the
loans
from the
company's
cash
flow. |
LIBOR
See
London
Interbank
Offer
Rate |
Lifeline
Accounts
(also
known as
Basic or
Low-Cost
Bank
Accounts)
Low-cost
deposit
accounts
available
to
targeted
consumers.
Offering
this
type of
account
is
required
by law
in some
states.
See also
Bank
Accounts,
Low-Cost
Bank
Accounts. |
Limited
Appreciation
A
restriction
on the
amount
of
appreciation
that a
property
owner
can
realize
at the
point-of-sale. |
Limited
Equity
Homeownership
LEH
Multifamily
residences
owned
and
controlled
by
tenants
in which
resale
values
are
restricted
in order
to
maintain
the
long-term
affordability
of the
units.
LEH
residences
are
often
developed
with
public
assistance
in the
form of
relaxed
zoning
regulations
or the
discounted
sale of
publicly
owned
land, in
order to
reduce
development
costs.
LEH can
take the
form of
a
cooperative
or a
condominium. |
Linked
Deposit
The
utilization
of
public
money to
encourage
private
lending
that is
beneficial
to
community
interests.
Specifically,
a
deposit
of
public
funds by
a city
or state
government
in a
local
financial
institution
earmarked
for a
specific
project
or type
of
financing
(e.g.
agricultural
loans).
Typically,
these
deposits
receive
a
below-market
rate of
return
in
exchange
for a
commitment
from the
depository
institution
to
provide
low-interest
loans to
qualified
borrowers
that
have
been
judged
to have
a
superior
record
in the
area of
community
development.
These
deposits
are not
necessarily
earmarked
for a
particular
usage
but are
conditional
in the
sense
that
they
will be
withdrawn
if the
institution's
record
worsens. |
Liquidity
The
degree
to which
assets
of a
company
or an
investment
can
easily
be sold
or
converted
into
cash. |
Liquidity
Risk
In
banking,
risk
that a
depository
institution
will not
have
sufficient
cash or
liquid
assets
to meet
borrower
and
depositor
demand. |
Loan
Transaction
wherein
an owner
of
property,
called
Lender,
allows
another
party,
the
Borrower,
to use
the
property.
The
borrower
customarily
promises
to
return
the
property,
after a
specified
period
with
payment
for its
use,
called
Interest.
The
documentation
of the
promise
is
called a
promissory
note
when the
property
is cash. |
Loan
Consortium
A
collaboration
among
financial
institutions
that
pools
capital
to lend
to
affordable
housing
and
community
development
projects.
The
consortium
can be
structured
as an
independent
non-profit
corporation
or an
informal
lending
agreement.
The
former
has paid
staff
who are
responsible
for all
aspects
of the
lending
process,
while
the
latter
relies
on
collaboration
among
participating
institutions
to
select
and
service
the
loans.
An
institution's
participation
in each
loan may
be
predetermined
or done
on a
case-by-case
basis. |
Loan
Guarantee
A
program
offered
by state
and
federal
agencies
which
decreases
a
lender's
risk by
guaranteeing
a
portion
of a
debt
against
default.
Loan
guarantees
apply to
both
business
and
housing
loans,
and
target
projects
that
offer a
public
benefit,
but are
considered
too
risky to
finance
privately
without
the
guarantee. |
Loan
Loss
Reserve
A
statement
of
condition,
or
balance
sheet,
account
set up
by a
bank
based on
its
expectations
about
future
loan
losses.
As
losses
occur,
they are
charged
against
this
reserve.
That is,
that
loan
account
is
credited
and the
reserve
account
is
debited.
The
reserve
is
established
by a
debit to
an
expense
account
called
the loan
loss
provision,
with a
corresponding
credit
the loan
loss
reserve.
Also
called
allowance
for loan
losses
and
reserve
for
possible
credit
losses. |
Local
Development
Corporation
LDC
An
investment
company
that has
been
certified
by the
Small
Business
Administration
to help
finance
small
businesses.
An LDC
can
obtain
special
financing
from the
SBA that
enables
it to
extend
long-term,
fixed-asset
financing
to local
small
businesses. |
Lockbox
A
banking
service
provided
for the
rapid
collection
of a
customer's
receivables
and
rapid
credit
to the
customer's
account.
The
service
includes
collecting
the mail
from the
company's
post
office
box;
sorting,
totaling,
and
recording
the
payments;
processing
the
items;
and
making
the
necessary
bank
deposit. |
London
Interbank
Offer
Rate
LIBOR
An
international
money
market
interest
rate
representing
the
average
rate
offered
by banks
for the
interbank
placements
of
Eurodollars.
top
of
page
| M |
M1
The
sum
of
currency
held
by
the
public,
plus
travelers'
checks,
plus
demand
deposits,
plus
other
checkable
deposits
(i.e.,
negotiable
order
of
withdrawal
[NOW]
accounts,
and
automatic
transfer
service
[ATS]
accounts,
and
credit
union
share
drafts.) |
M2
M1
plus
savings
accounts
and
small-denomination
time
deposits,
plus
shares
in
money
market
mutual
funds
(other
than
those
restricted
to
institutional
investors),
plus
overnight
Eurodollars
and
repurchase
agreements. |
M3
M2
plus
large-denomination
time
deposits
at
all
depository
institutions,
large-denomination
term
repurchase
agreements,
and
shares
in
money
market
mutual
funds
restricted
to
institutional
investors. |
Macroeconomics
The
branch
of
economics
that
deals
with
the
economy
as
a
whole.
Macroeconomics
focuses
on
determinants
of
total
national
income,
deals
with
aggregates
such
as
aggregates
consumption
and
investment,
and
looks
at
the
overall
level
of
prices
rather
than
individual
prices.
See
also
Microeconomics. |
Magnetic
Stripe
Card
A
plastic
or
paper
card
with
a
magnetic
stripe
containing
information
about
the
card
owner,
the
financial
value
of
the
card,
or
other
related
information.
Some
examples
include
credit
cards,
debit
cards,
electronic
benefit
transfer
(EBT)
cards,
public
transit
fare
cards,
and
telephone
usage
cards.
See
Also
Automated
Teller
Machine,
Credit
Card,
Debit
Card. |
Margin
With
regard
to
securities,
this
term
refers
to
a
fractional
amount
of
full
value,
or
the
equity
outlay
(down
payment)
required
for
an
investment
in
securities
purchased
on
credit. |
Margin
Requirement
Minimum
amount
that
a
client
must
deposit
in
the
form
of
cash
or
eligible
securities
in
a
margin
account
as
spelled
out
in
Regulation
T
of
the
Federal
Reserve
Board.
Reg
T
requires
a
minimum
50%
of
the
purchase
price
of
eligible
securities
bought
on
margin
or
50%
of
the
proceeds
of
short
sales.
Also
called
initial
margin. |
Margin
Stock
Any
stock
listed
on
a
national
securities
exchange,
any
over-the-counter
security
approved
by
the
SEC
for
trading
in
the
national
market
system,
or
appearing
on
the
Board's
list
of
over-the-counter
margin
stock
and
most
mutual
funds. |
Markov
Process
An
ordered
set
of
discrete
random
variables,
each
of
which
has
at
any
time
a
given
state
or
value
dependent
only
to
the
state
of
the
variable
immediately
before
it.
It
assumes
that
only
the
current
value
of
a
stochastic
(random)
variable
is
important
in
predicting
future
values
of
the
variable. |
Matched
Sale-Purchase
Agreements
When
the
Federal
Reserve
makes
a
matched
sale-purchase
agreement,
it
sells
a
security
outright
for
immediate
delivery
to
a
dealer
or
foreign
central
bank,
with
an
agreement
to
buy
the
security
back
on
a
specific
date
(usually
within
7
days)
at
the
same
price.
Matched
sale-purchase
agreements
are
the
reverse
of
repurchase
agreements
and
allow
the
Federal
Reserve
to
withdraw
reserves
on
a
temporary
basis. |
Mean
Income
Mean
income
is
calculated
by
dividing
the
total
income
of
area
residents
by
the
number
of
residents
in
the
area.
Mean
household
income
is
obtained
by
dividing
the
total
household
income
by
the
number
of
people
living
in
the
household. |
Median
Income
Median
income
divides
the
income
distribution
into
two
equal
parts,
one
with
residents
having
incomes
above
the
median
and
the
other
with
residents
having
incomes
below
the
median.
Median
family
and
household
incomes
are
based
on
the
distribution
of
the
total
number
of
units
including
those
with
no
income.
However,
the
median
income
calculation
for
persons
is
based
on
persons
with
income. |
Merger
The
combination
of
two
or
more
enterprises.
If
the
enterprises
are
of
the
corporate
type,
the
merger
involves
the
exchange
of
securities,
the
issuance
of
new
securities,
or
both. |
Mergers
and
Acquisitions
Business
combination
of
two
or
more
entities;
the
Department
of
a
consulting
or
management
services
entity
that
provides
advice
to
other
companies
on
potential
business
combination. |
Metropolitan
Statistical
Area
A
federally
designated
geographically
unit
consisting
of
an
urbanized
area
a
central
city
of
least
50,000
residents
and
a
regional
population
of
100,000.
Federal
banking
regulations
permit
financial
institutions
doing
business
within
an
MSA
to
use
a
single
master
account
in
dealing
with
the
Federal
Reserve
for
computing
reserve
requirements,
processing
checks,
and
sending
electronic
fund
transfers. |
Microeconomics
The
branch
of
economics
that
deals
with
the
functioning
of
individual
industries,
and
the
behavior
of
individual
decision-making
units-business
firms
and
household. |
Microenterprise
Loan
Fund
A
non-profit
revolving
loan
fund
that
provides
small,
short-term
loans
for
working
capital
and
technical
assistance
to
very
small
businesses.
Loan
sizes
may
range
from
$50
to
several
thousand
dollars.
Terms
are
more
flexible
than
available
conventional
financing. |
Micropayments
Allow
content
providers
to
charge
very
small
fees
(a
fraction
of
a
penny)
for
access
to
a
site
or
other
electronic
information.
The
aggregated
payments
are
then
deducted
from
a
user's
e-cash
account
or
credit
card,
making
the
experience
highly
fluid.
However,
unless
users
are
conducting
volume
transactions,
the
cost
of
processing
is
far
greater
than
the
revenue
generated
-
also,
users
have
to
be
willing
to
set-up
an
e-cash
account.
See
Also
Electronic
Cash. |
Monetary
Aggregates
Aggregate
measures
through
which
the
Federal
Reserve
monitors
the
nation's
monetary
assets:
M1,
M2,
and
M3. |
Monetary
Policy
Federal
Reserve
actions
to
influence
the
availability
and
cost
of
money
and
credit,
as
a
means
of
helping
to
promote
high
employment,
economic
growth,
price
stability,
and
a
sustainable
pattern
of
international
transactions.
Tools
of
monetary
policy
include
open
market
operations,
discount
policy,
and
reserve
requirements.
See
also
Open
Market
Operations,
Discount
Policy,
and
Reserve
Requirements |
Money
Anything
that
serves
as
a
generally
accepted
medium
of
exchange,
a
standard
of
value,
and
a
means
to
save
or
store
purchasing
power.
In
the
US,
paper
currency
(nearly
all
of
which
consists
of
Federal
Reserve
notes),
coin
and
funds
in
checking
and
similar
accounts
at
depository
institutions
are
examples
of
money.
See
also
Currency. |
Money
Laundering
The
term
given
to
the
process
in
which
money
from
illegal
activities
is
transferred
into
legal
investment
or
converted
into
other
assets.
See
also
Laundered
Money. |
Money
Laundering
Act
of
1986
Legislation
that
established
the
federal
crime
of
money
laundering
and
other
related
crimes
and
provides
for
the
punishment
of
those
crimes.
It
requires
the
banks
and
saving
institution
have
in
place
a
reporting
system
to
monitor
cash
transactions
under
$10,000. |
Money
Market
Certificate
A
certificate
of
deposit
in
a
minimum
denomination
of
$10,000
with
a
maturity
of
six
months.
The
interest
rate
on
money
market
certificates
is
related
to
the
yield
on
six-month
Treasury
bills,
in
accordance
with
regulations
issued
by
the
Depository
Institutions
Deregulation
Committee.
See
Also
Depository
Institutions
Deregulation
Committee. |
Money
Smart
Developed
by
the
FDIC,
Money
$mart
is
designed
to
help
adults
currently
outside
the
financial
mainstream
build
financial
knowledge
and
develop
positive
relationships
with
financial
institutions.
See
also
Project
Money
$mart. |
Money
Stock
Total
quantity
of
money
available
for
transactions
and
investment;
measures
of
the
U.S.
money
stock
include
M1,
M2
and
M3.
(Also
referred
to
as
the
money
supply,
or
simply
money).
See
also
M1,
M2,
M3,
Money
Supply. |
Money
Supply
The
total
amount
of
money
available
for
transactions
and
investment
in
the
economy.
Also
known
as
the
money
stock.
The
Federal
Reserve
Board
uses
various
statistical
measures
to
measure
the
various
forms
of
money
that
make
up
the
money
supply.
See
also
M1,
M2,
M3,
Money
Stock. |
Money
Transfer
See
Wire
Transfer |
Mortgage
Debt
instrument
by
which
the
borrower
(mortgagor)
gives
the
lender
(mortgage)
a
lien
a
property
as
security
for
the
repayment
of
a
loan.
The
borrower
has
use
of
the
property,
and
the
lien
is
removed
when
the
obligation
is
fully
paid.
A
mortgage
normally
involves
real
estate.
See
also
Debt. |
Mortgage
Loan
A
loan
used
to
finance
the
lender
beyond
conventional
interest
payments
as
an
incentive
to
grant
a
loan
on
income
property.
A
mortgage
kicker
is
typically
an
interest
in
equity
or
annual
income.
See
also
Debt,
Loan. |
Mortgage-Backed
Securities
Securities
representing
an
undivided
interest
in
a
pool
of
mortgages
or
trust
deeds
with
similar
characteristic.
Payments
on
the
underlying
mortgages
are
used
to
make
payments
to
the
security
holders.
Mortgage-backed
securities,
such
as
those
issued
by
the
Federal
National
Mortgage
Association,
are
secured
by
conventional
mortgage
and
guaranteed
as
to
interest
and
principal. |
Mutual
Fund
A
registered
investment
trust
company.
A
mutual
fund
is
an
"open-end"
investment
company
whose
primary
activity
is
investing,
usually
in
a
diversified
portfolio
of
securities.
The
stockholder
in
a
mutual
fund
buys
shares
from,
or
sells
them
back
to,
the
mutual
fund
in
a
direct
sale,
not
through
a
stock
exchange.
top
of
page
| N |
National
Association
of
Securities
Dealers
NASD
A
self-regulatory
organization
with
jurisdiction
over
certain
broker-dealers.
The
NASD
requires
member
brokers
to
register,
and
conducts
examinations
for
compliance
with
net
capital
requirements
and
other
regulations.
It
also
conducts
market
surveillance
of
the
over-the-counter
(OTC)
securities
market.
NASDAQ
is
a
subsidiary
of
the
NASD
which
facilitates
the
trading
of
approximately
5,000
most
active
OTC
issues
through
an
electronically
connected
network.
See
also
National
Association
of
Securities
Dealers
Automated
Quotations,
Over-the
Counter
Stocks. |
National
Association
of
Securities
Dealers
Automated
Quotations
NASDAQ
An
automated
data
network
providing
brokers
and
dealers
with
price
quotations
on
securities
traded
in
the
over-the-counter
market.
See
also
National
Association
of
Securities
Dealers,
Over-the-Counter
Stocks. |
National
Automated
Clearing
House
Association
NACHA
A
not
for
profit
banking
trade
association
with
the
largest
number
of
member
financial
institutions
in
the
country.
NACHA
promulgates
the
rules
and
operating
guidelines
for
electronic
payments
through
the
ACH
Network,
and
for
EBT,
electronic
checks,
financial
EDI
and
cross-border
transactions.
The
ACH
Network
links
America's
depository
financial
institutions
to
the
nationwide
electronic
payment
and
collection
infrastructure.
See
Automated
Clearing
House,
Electronic
Benefit
Transfer,
Electronic
Check,
Electronic
Data
Interchange. |
National
Bank
A
commercial
bank
that
is
chartered
by
the
Comptroller
of
the
Currency;
by
law,
national
banks
are
members
of
the
Federal
Reserve
System.
See
also
Comptroller
of
the
Currency. |
National
Housing
Act
A
law
that
established
the
Federal
Housing
Administration,
which
insures
home
mortgages,
provides
home
improvement
loans,
and
finances
low-income
housing
projects.
See
also
Federal
Housing
Administration. |
Negative
Amortization
Repayment
schedule
calling
for
periodic
payments
that
are
insufficient
to
fully
amortize
the
loan.
Earned
but
unpaid
interest
is
added
to
the
principal,
increasing
the
debt.
Eventually,
payments
must
be
rescheduled
to
fully
pay
off
the
debt.
See
also
Amortization,
Balloon
Mortgage. |
Negotiable
Order
of
Withdrawal
Account
NOW
An
interest
earning
account
on
which
checks
may
be
drawn.
Withdrawals
from
NOW
accounts
may
be
subject
to
a
14-day
or
more
notice
requirement
although
such
is
rarely
imposed.
NOW
accounts
may
be
offered
by
commercial
banks,
mutual
savings
banks,
and
savings
and
loan
associations
and
may
be
owned
only
by
individuals
and
certain
nonprofit
organizations
and
governmental
units. |
Neighborhood
Housing
Services
NHS
A
national
network
of
neighborhood-based
service
organizations
that
are
locally
operated
and
funded.
An
NHS
focuses
on
a
specific
community
or
communities
to
increase
the
supply
of
affordable
housing
and
promote
neighborhood
stabilization
by
providing
below-market
construction
and
rehabilitation
financing,
technical
assistance,
and
support
for
resident
activism.
Board
members
include
local
residents,
business
leaders,
public
officials,
and
community
representatives.
All
NHSs
receive
assistance
from,
and
are
monitored
by,
the
Neighborhood
Reinvestment
Corporation. |
Neighborhood
Housing
Services
of
America
A
private,
non-profit
tax-exempt
corporation
which
acts
as
a
secondary
market
to
purchase
nonbankable
loans
from
local
NHS
revolving
loan
funds. |
Neighborhood
Reinvestment
Corporation
A
congressionally
chartered,
federally-
funded,
public
non-profit
corporation
established
in
1978
whose
mission
is
to
assist
in
the
revitalization
of
lower-income
neighborhoods
and
in
the
provision
of
affordable
housing
in
these
neighborhoods.
NRC
works
mainly
through
local
NHSs,
providing
training,
operational
grants,
and
technical
assistance. |
Non-bank
Bank
An
institution
created
under
an
interpretation
of
law
which
allows
nonbanking
companies
to
open
banking
offices
and
commercial
banks
to
open
limited
service
branches
across
state
line
despite
the
then
effective
statutory
ban
on
interstate
banking. |
Non-member
Depository
Institution
A
depository
institution
(commercial
bank,
mutual
savings
bank,
savings
and
loan
association,
credit
union,
or
US
agency
or
branch
of
a
foreign
bank)
that
is
not
a
member
of
the
Federal
Reserve
System.
Nonmember
depository
institutions
that
offer
transaction
accounts
or
nonpersonal
time
deposits
are
subject
to
reserve
requirements
set
by
the
Federal
Reserve,
and
they
also
have
access
to
the
Federal
Reserve
discount
window
and
Federal
Reserve
services
on
the
same
terms
as
member
banks.
See
Also
Member
Bank. |
Now
Account
Deregulated
transaction
authorized
for
depository
institution
in
1982.
It
paid
interest
higher
than
on
a
conventional
NOW
(Negotiable
Order
of
Withdrawal)
account
but
slightly
lower
than
that
on
the
Money
Market
Deposit
Account
(MMDA).
top
of
page
| O |
Obligation
The
requirement
imposed
on
debtor
to
pay
a
debt
and
the
legal
right
of
a
creditor
to
enforce
payment. |
Offshore
Banking
A
banking
unit
that
conducts
business
in
other
countries
but
is
not
allowed
to
do
business
in
the
country
it
is
located. |
Online
Banking
Access
by
personal
computer
or
terminal
to
bank
information,
accounts
and
certain
transactions
via
the
financial
institution’s
web
site
on
the
Internet.
Also
known
as
Internet
banking. |
Online
Bill
Paying
A
common
form
of
home
banking
bill-paying
service
where
the
customer's
computer
is
connected
to
a
computer
at
a
financial
institution
or
its
proxy
the
entire
time
that
bill-paying
transactions
are
performed.
More
generally,
online
home
banking
means
that
the
customer's
computer
is
continuously
connected
to
another
computer
while
all
transactions
are
performed.
If
a
telephone
line
is
used
to
make
the
connection,
online
means
that
the
line
is
busy
while
all
transactions
performed
in
one
session
are
carried
out,
similar
to
a
telephone
call
to
an
individual.
See
also
Online
Banking,
Home
Banking,
Cyberbanking. |
Open
Market
Operations
Purchases
and
sales
of
government
and
certain
other
securities
in
the
open
market
by
the
New
York
Federal
Reserve
Bank
as
directed
by
the
FOMC
in
order
to
influence
the
volume
of
money
and
credit
in
the
economy.
Purchases
inject
reserves
into
the
depository
system
and
foster
expansion
in
money
and
credit;
sales
have
the
opposite
effect.
Open
market
operations
are
the
Federal
Reserve's
most
important
and
most
flexible
monetary
policy
tool.
They
are
used
to
promote
either
higher
or
lower
growth
in
money
and
credit
and
to
offset
undesired
changes
in
the
reserve
positions
of
depository
institutions
stemming
from
movements
in
currency,
float,
Treasury
deposits,
and
other
factors.
See
also
Federal
Reserve
Open
Market. |
Open
Stored
Value
System
A
system
that
may
be
comprised
of
one
or
more
electronic
cash
issuers
of
stored
value
that
is
accepted
by
multiple
merchants
or
entities. |
Open-End
Credit
A
line
of
credit
that
may
be
used
repeatedly
up
to
a
certain
limit,
also
called
a
charge
account
or
revolving
credit |
Open-End
Lease
A
lease
that
may
involve
a
balloon
payment
based
on
the
value
of
the
property
when
it
is
returned.
(Also
called
finance
lease.)
See
also
Balloon
Payment. |
Option
A
contract
that
provides
the
right,
but
not
the
obligation,
to
buy
or
sell
a
specific
amount
of
a
specific
security
within
a
predetermined
time
period.
One
call
option
contract
gives
the
buyer
the
right
to
purchase,
or
a
put
buyer
to
sell,
100
shares
of
the
underlying
stock
in
exchange
for
a
premium
based
on
the
time
value.
The
seller
of
the
contracts
is
called
the
writer.
See
also
Futures. |
Organization
For
Economic
Cooperation
and
Development
OECD
Official
group
of
24
nations,
including
most
of
the
major
industrialized
countries,
that
was
formed
in
1961
to
coordinate
economic
and
social
policies
among
its
members
and
promote
economic
assistance
to
developing
countries.
Its
members
are
Australia,
Austria,
Belgium,
Canada,
Denmark,
Finland,
France,
Germany,
Greece,
Iceland,
Ireland,
Italy,
Japan,
Luxembourg,
the
Netherlands,
New
Zealand,
Norway,
Portugal,
Spain,
Sweden,
Switzerland,
Turkey,
the
United
Kingdom,
and
the
United
States.
Yugoslavia
takes
part
in
certain
work
of
the
OECD
and
is
included
in
certain
statistics
relating
to
OECD
countries.
It's
based
in
Paris.
See
also
G-24
(Group
of
Twenty-four) |
Overcrowded
and
Severely
Overcrowded
Units
According
to
the
Department
of
Housing
and
Urban
Development,
these
are
defined
as
units
that
have
1.01
to
1.49
persons
per
room.
Severely
overcrowded
units
are
those
that
have
1.5
or
more
persons
per
room.
See
also
Department
of
Housing
and
Urban
Development. |
Overdraft
Checking
Account
A
checking
account
associated
with
a
line
of
credit
that
allows
a
person
to
write
checks
for
more
than
the
actual
balance
in
the
account,
with
a
finance
charge
on
the
overdraft.
| P |
Payday
Loan
A
transaction
in
which
a
short-term
cash
advance
is
made
to
a
consumer
in
exchange
for
a
customer's
post-dated
check
in
the
amount
of
the
advance
plus
a
fee,
or
in
exchange
for
a
consumer's
authorization
to
debit
a
transaction
account
in
the
amount
of
the
advance
plus
a
fee
at
a
designated
future
date. |
Payment
Mechanism
Systems
designed
for
the
movement
of
funds,
payments,
and
money
between
financial
institutions
throughout
the
nation.
The
Federal
Reserve
plays
a
major
role
in
the
nation's
payments
mechanism
through
distribution
of
currency
and
coin,
check
processing,
wire
transfer
of
funds,
and
the
operation
of
automated
clearinghouses
that
transfer
funds
electronically
among
depository
institutions.
Federal
Reserve
payments
mechanism
services
are
made
available
to
both
member
banks
and
nonmember
depository
institutions
on
the
basis
of
uniform
pricing
schedules. |
Payment
System
A
financial
system
that
establishes
the
means
for
transferring
money
between
suppliers
and
users
of
funds,
usually
by
exchanging
debits
or
credits
between
financial
institutions. |
Per
Capita
Income
This
income
measure
is
the
total
personal
income
of
the
residents
of
a
given
area
divided
by
the
resident
population
of
the
area.
Per
capita
income
is
actually
the
mean
income
computed
for
every
man,
woman,
and
child
in
a
particular
group.
It
is
often
used
as
an
indicator
of
the
quality
of
consumer
markets
and
of
the
well
being
of
the
residents
of
an
area. |
Permissible
Non-bank
Activities
Financial
activities
closely
related
to
banking
that
may
be
engaged
in
by
bank
holding
companies,
either
directly
or
through
nonbank
subsidiaries.
Examples
are
owning
finance
companies
and
engaging
in
mortgage
banking.
The
Board
determines
which
activities
are
closely
related
to
banking.
Before
making
such
activities
permissible,
the
Board
must
also
determine
that
performance
of
the
activities
by
bank
holding
Companies
is
in
the
public
interest. |
Personal
Identification
Number
PIN
A
sequence
of
digits
assigned
to
consumers
that
are
used
to
identify
them
when
debit
cards
are
used
at
an
ATM,
POS
terminals
or
a
home
device.
See
also
ATM,
Credit
Card,
Debit
Card,
Magnetic
Stripe
Card. |
Personal
Loan
An
unsecured
loan
usually
made
for
the
purpose
of
debt
consolidation,
vacation
or
the
purchase
of
durable
goods.
Also
called
a
signature
loan.
See
also
Consumer
Credit,
Signature
Loan. |
Phillips
Curve
A
graph
showing
the
relationship
between
the
inflation
rate
and
the
unemployment. |
Point-of-
Sale
Network
An
electronic
device
that
allows
merchants
to
accept
a
debit
card
in
payment
for
goods
or
services
to
effect
payment
for
purchases
at
retail
establishments.
The
same
device
may
also
be
used
to
accept
credit
card
payments. |
Points
Finance
charges
paid
by
the
borrower
at
the
beginning
of
a
loan
in
addition
to
monthly
interest;
each
point
equals
one
percent
of
the
loan
amount.
See
also
Finance
Charge. |
Portfolio
Collection
of
loan
or
assets,
classified
by
type
of
borrower
or
asset.
For
example,
a
bank's
portfolio
might
include
loans,
investment
securities,
and
assets
managed
in
trust;
the
loan
portfolio
might
include
commercial,
mortgage,
and
consumer
installment
loans. |
Predatory
Lending
Unscrupulous
lending
that
involves
at
least
one
of
the
following
elements:
-
making
high-cost
loans
based
on
the
assets
of
the
borrower
rather
than
on
the
borrower's
ability
to
repay
the
obligation
-
inducing
a
borrower
to
refinance
a
loan
repeatedly
in
order
to
charge
high
points
and
fees
each
time
the
loan
is
refinanced
("loan
flipping")
-
engaging
in
fraud
or
deception
to
conceal
the
true
cost
of
the
loan
obligation
(e.g.
terms
and
fees)
from
an
unsuspecting
or
unsophisticated
borrower. |
Prepaid
Card
A
card
on
which
value
is
stored,
and
for
which
the
holder
has
paid
the
issuer
in
advance.
Telephone
cards
are
a
common
example
of
prepaid
cards. |
Prime
Rate
The
interest
rate
charged
by
leading
banks
to
their
best,
most
secure
customers.
The
rate
is
determined
by
the
market
forces
affecting
a
banks'
cost
of
funds
and
the
rates
that
borrower
will
accept. |
Principal
Major
party
to
a
transaction,
acting
as
either
a
buyer
or
a
seller.
A
principal
buys
and
sells
for
his
or
her
own
account
and
risk.
It
is
also
refers
to
the
amount
initially
lent
for
a
loan
or
mortgage. |
Producer
Price
Index
Measure
of
change
in
wholesale
prices,
as
released
monthly
by
the
U.S.
Bureau
of
Labor
Statistics.
The
index
is
broken
down
into
components
by
commodity,
industry
sector,
and
stage
of
processing.
See
also
Consumer
Price
Index. |
Productivity
The
amount
of
physical
output
for
each
unit
of
productive
input. |
Project
Money
$mart
Chicago
Fed's
Project
Money
$mart,
is
an
ongoing
series
of
activities
that
promote
education
about
a
wide
range
of
personal
finance
topics.
See
Money
Smart. |
Promissory
Note
A
written
promise
made
by
one
person,
the
maker,
to
pay
a
certain
sum
of
money
to
another
person,
the
payee,
or
to
his
or
her
order,
on
demand
or
at
a
determinable
future
date. |
Purchasing
Power
The
amount
of
goods
or
services
that
one
unit
of
money
or
one
unit
of
an
asset
can
buy. |
Pyramid
debt
The
borrowing
of
funds
in
rapid
succession
without
firs
repaying
previous
debt,
usually
to
meet
obligation
on
earlier
loans.
Such
a
practice
will
rapidly
erode
a
borrower's
financial
position.
top
of
page
Q
| R |
Real
Estate
The
right,
title,
or
interest
that
a
person
has
in
real
property,
as
distinguished
from
the
property
itself. |
Real
Estate
Investment
Trust
REIT
An
organization,
usually
corporate,
established
to
accumulate
funds
for
investment
in
real
estate
holdings,
or
to
extend
credit
to
others
engaged
in
construction.
Funds
for
investment
are
usually
accumulated
by
selling
shares
of
ownership
in
the
trust. |
Recession
A
significant
decline
in
general
economic
activity
extending
over
a
period
of
time. |
Redlining
A
practice
in
which
certain
areas
of
a
community
are
eliminated
from
eligibility
for
mortgages
or
other
loans,
either
intentionally
or
unintentionally,
allegedly
because
the
area
is
considered
a
poor
investment
risk. |
Regional
Bank
A
bank
that
specializes
in
collecting
deposits
and
making
loans
in
one
region
of
the
country,
as
distinguished
from
a
Money
Center
Bank,
which
operates
nationally
and
internationally. |
Regional
Check
Processing
Center
RCPC
A
Federal
Reserve
check
processing
operation
that
clears
checks
drawn
on
depository
institutions
located
within
a
specified
area.
RCPCs
expedite
collection
and
settlement
of
checks
within
the
area
on
an
overnight
basis. |
Regulation
9
A
regulation
issued
by
the
Comptroller
of
the
Currency
establishing
standards
for
national
banks
in
their
use
of
fiduciary
powers
and
collective
investment
funds.
The
full
title
is
Regulation. |
Regulation
A
-
Extensions
of
Credit
by
Federal
Reserve
Bank
Governs
by
depository
institutions
at
the
Federal
Reserve
discount
window. |
Regulation
AA
-
Unfair
or
Deceptive
Acts
or
Practices
Establishes
consumer
complaint
procedures
and
defines
unfair
or
deceptive
practices
in
extending
credit
to
consumers. |
Regulation
B
-
Equal
Credit
Opportunity
Prohibits
lenders
from
discriminating
against
credit
applicants,
establishes
guidelines
for
Gathering
and
evaluating
credit
information,
and
requires
written
notification
when
credit
is
denied |
Regulation
BB
-
Community
Reinvestment
Implements
the
Community
Reinvestment
Act
and
encourages
banks
to
help
meet
the
credit
needs
of
their
communities. |
Regulation
C
-
Home
Mortgage
Disclosure
Requires
certain
mortgage
lenders
to
disclose
data
regarding
their
lending
patterns. |
Regulation
CC
-
Availability
of
Funds
and
Collection
of
Checks
Governs
the
availability
of
funds
deposited
in
checking
accounts
and
the
collection
and
return
of
checks. |
Regulation
D
-
Reserve
Requirements
of
Depository
Institutions
Sets
uniform
requirements
for
all
depository
institutions
to
maintain
reserve
balances
either
with
their
Federal
Reserve
Bank
or
as
cash
in
their
vaults. |
Regulation
DD
-
Truth
in
Savings
Requires
depository
institutions
to
provide
disclosures
to
enable
consumers
to
make
meaningful
comparisons
of
deposit
accounts. |
Regulation
E
-
Electronic
Funds
Transfers
Establishes
the
rights,
liabilities,
and
responsibilities
of
parties
in
electronic
funds
transfers
and
protects
consumers
when
they
use
such
systems. |
Regulation
EE
-
Netting
Eligibility
for
Financial
Institution
Defines
financial
institutions
to
be
covered
by
statutory
provisions
regarding
netting
contracts-that
is,
contracts
in
which
parties
agree
to
pay
or
receive
the
net,
rather
than
the
gross,
payment
due. |
Regulation
F
-
Limitations
on
Interbank
Liabilities
Prescribes
standards
to
limit
the
risks
posed
by
obligations
of
insured
depository
Institutions
to
other
depository
institutions. |
Regulation
G
-
Securities
Credit
by
Persons
other
than
Banks,
Brokers,
or
Dealers
Governs
extension
of
credit
by
parties
other
than
banks,
brokers,
or
dealers
to
finance
the
purchase
or
the
carrying
of
margin
securities;
see
also
regulations
T,
U,
and
X. |
Regulation
H
-
Membership
of
State
Banking
Institutions
in
the
Federal
Reserve
System
Defines
the
requirements
for
membership
by
state-chartered
banks
in
the
Federal
Reserve
System
and
establishes
minimum
levels
for
the
ratio
of
capital
to
assets
to
be
maintained
by
state
member
banks. |
Regulation
I
-
Issue
and
Cancellation
of
Capital
Stock
of
Federal
Reserve
Banks
Sets
forth
stock-subscription
requirements
for
all
banks
joining
the
Federal
Reserve
System. |
Regulation
J
-
Collections
of
Checks
and
Other
Items
by
Federal
Reserve
Banks
and
Funds
Transfers
th
Establishes
procedures,
duties
and
responsibilities
among
(1)
Federal
Reserve
Banks,
(2)
the
senders
and
payors
of
checks
and
other
items,
and
(3)
the
senders
and
recipients
of
wire
transfers
of
funds. |
Regulation
K
-
International
Banking
Operations
Governs
the
international
banking
operations
of
U.S.
banking
organization
and
the
operations
of
foreign
banks
in
the
United
States. |
Regulation
L
-
Management
Official
Interlocks
Restricts
the
management
relationships
that
an
official
in
one
depository
institution
may
have
with
other
depository
institution. |
Regulation
M
-
Consumer
Leasing
Implements
the
consumer
leasing
provisions
of
the
Truth
in
Lending
Act
by
requiring
meaningful
disclosure
of
leasing
terms. |
Regulation
N
-
Relations
with
Foreign
Banks
and
Bankers
Governs
relationship
and
transactions
between
Federal
Reserve
Banks
and
foreign
banks,
bankers,
or
governments. |
Regulation
O
-
Loans
to
Executive
Officers,
Directors,
and
Principal
Shareholders
of
Member
Banks
Restricts
credit
that
a
member
bank
may
extend
to
its
executive
officers,
directors,
and
principal
shareholders
and
their
related
interests. |
Regulation
P
-
Minimum
Security
Devices
and
Procedures
for
Federal
Reserve
Banks
and
State
Member
Sets
requirements
for
security
program
that
state-chartered
member
banks
must
establish
to
discourage
robberies,
burglaries,
and
larcenies. |
Regulation
Q
-
Prohibition
Against
Payment
on
Interest
on
Demand
Deposits
Prohibits
member
banks
from
paying
interest
on
demand
deposits
(for
example,
checking
Accounts. |
Regulation
R
-
Relationship
with
Dealers
in
Securities
under
Section
32
of
the
Banking
Act
of
1933
Restrict
employment
relations
between
securities
dealers
and
member
banks
to
avoid
conflict
of
interest,
collusion,
or
undue
influence
on
member
bank
investment
policies
or
advice
to
customers. |
Regulation
S
-
Reimbursement
to
Financial
Institutions
for
Assembling
or
Providing
Financial
Records
Establishes
rates
and
conditions
for
reimbursement
to
financial
institutions
for
providing
customer
records
to
a
government
authority. |
Regulation
T
-
Credit
by
Brokers
and
Dealers
Governs
extension
of
credit
by
securities
brokers
and
dealers,
including
all
members
of
national
securities
exchanges.
See
Also
regulations
G,
U,
and
X. |
Regulation
U
-
Credit
by
Banks
for
Purchasing
or
Carrying
Margin
Stocks
Governs
extension
of
credit
by
banks
to
finance
the
purchase
or
the
carrying
of
margin
securities.
See
also
regulations
G,
T,
and
X. |
Regulation
V
-
Loan
Guarantees
for
Defense
Production
(Dorman)
Federal
Reserve
regulation
dealing
with
financing
of
contractors,
subcontractors
and
others
involved
in
national
defense
work.
The
requlation
spells
out
the
authority
granted
to
reserve
banks
under
the
Defense
Production
Act
of
1950,
to
assist
federal
departments
and
agencies
in
making
and
administering
loan
guarantees
to
defense-related
contractors,
and
sets
maximum
interest
rates,
guaranty
fees
and
commitment
fees. |
Regulation
X
-
Borrowers
of
Securities
Credit
Extends
to
borrowers
who
are
subject
to
U.S.
laws
the
provisions
of
regulations
G,
T,
and
U
for
obtaining
credit
within
or
outside
the
United
States
for
the
purpose
of
purchasing
securities.
See
also
regulations
G,
T,
and
U. |
Regulation
Y
-
Bank
Holding
Companies
and
Change
in
Bank
Control
Governs
the
bank
and
nonbank
expansion
of
bank
holding
companies,
the
divestiture
of
impermissible
nonblank
interests,
and
the
acquisition
of
a
bank
by
individuals. |
Regulation
Z
-
Truth
in
Lending
Prescribes
uniform
methods
for
computing
the
cost
of
credit,
for
disclosing
credit
terms,
and
for
resolving
errors
on
certain
types
of
credit
accounts. |
REIT
See
Real
Estate
Investment
Trust. |
Remote
Payment
A
payment
carried
out
through
the
sending
of
payment
orders
or
payment
instruments. |
Renegotiable
Rate
Mortgage
RMM
A
type
of
variable
rate
involving
a
renewable
short-term
"balloon"
note.
The
interest
rate
on
the
loan
is
generally
fixed
during
the
term
of
the
note,
but
when
the
balloon
comes
due,
the
lender
may
refinance
it
at
a
higher
rate.
In
order
for
the
loan
to
be
fully
amortized,
periodic
refinancing
may
be
necessary. |
Rent
Supplement
Payments
to
owners
of
private
housing
by
a
government
agency
which
supports
low-income
tenants.
The
owner
receives
the
difference
between
a
share
of
the
tenant's
monthly
income
(usually
30
percent)
and
an
amount
established
by
the
agency
to
be
a
fair
market
rent.
Supplements
can
either
be
project-based
or
tenant-based.
Project-based
supplements
stay
in
effect
as
long
as
qualified
tenants
occupy
designated
units;
tenant-based
supplements
are
given
to
qualified
individuals
and
apply
to
a
unit
as
long
as
that
individual
resides
there. |
Report
of
Condition
and
Income
Financial
report
that
all
banks,
bank
holding
companies,
savings
and
loan
associations,
Edge
Act
and
agreement
corporations,
and
certain
other
types
or
organizations
must
file
with
a
federal
regulatory
agency.
Informally
termed
a
Call
Report. |
Repurchase
Agreements
When
the
Federal
Reserve
makes
a
repurchase
agreement
with
a
government
securities
dealer,
it
buys
a
security
for
immediate
delivery
with
an
agreement
to
sell
the
security
back
at
the
same
price
by
a
specific
date
(usually
within
15
days)
and
receives
interest
at
a
specific
rate.
This
arrangement
allows
the
Federal
Reserve
to
inject
reserves
into
the
banking
system
on
a
temporary
basis
to
meet
a
temporary
need
and
to
withdraw
these
reserves
as
soon
as
that
need
has
passed. |
Reserve
Requirements
Reserves
that
must
be
held
against
customer
deposits
of
banks
and
other
depository
institutions.
The
reserve
requirement
ratio
affects
the
expansion
of
deposits
that
can
be
supported
by
each
additional
dollar
of
reserves.
The
Board
of
Governors
sets
reserve
requirements
within
limits
specified
by
law
for
all
depository
institutions
(including
commercial
banks,
savings
banks,
savings
and
loan
associations,
credit
unions,
some
industrial
loan
banks,
and
US
agencies
and
branches
of
foreign
banks)
that
have
transaction
accounts
or
nonpersonal
time
deposits.
A
lower
reserve
requirement
allows
more
deposit
and
loan
expansion
and
a
higher
reserve
ratio
permits
less
expansion. |
Reserves
Funds
set
aside
by
depository
institutions
to
meet
reserve
requirements.
For
member
banks,
reserve
requirements
are
satisfied
with
holdings
of
vault
cash
and/or
balances
at
the
Federal
Reserve
Banks.
Depository
institutions
that
are
not
members
of
the
Federal
Reserve
System
may
hold
their
reserves
in
the
same
manner,
or
they
may
pass
the
reserve
balances
through
a
correspondent
institution
to
the
Federal
Reserve
Banks. |
Resolution
Trust
Company
RTC
A
federal
agency
created
by
the
Financial
Institution
Reform,
Recovery
and
Enforcement
Act
of
1989
(commonly
known
as
FIRREA)
to
oversee
the
liquidation
of
assets
of
insolvent
savings
and
loan
association. |
Retail
Banking
Banking
services
offered
to
consumers
and
small
businesses.
The
"full-service"
commercial
bank
offers
both
retail
and
"wholesale"
banking
services,
dealing
with
both
consumers
and
business
of
all
sizes. |
Revolving
Loan
Fund
RLF
In
general,
a
fund
structured
so
that
repayments
are
used
to
make
more
loans.
The
term
RLF
is
also
used
interchangeably
with
Community
Development
Loan
Fund.
The
term
is
also
used
specifically
to
describe
a
non-profit
loan
fund,
which
depends
primarily
on
public
money
to
make
housing
and
small
business
loans.
In
this
instance,
an
RLF
is
distinct
from
a
CDLF
in
that
the
RLF
focuses
on
larger
scale
development;
that
is,
the
loans
are
generally
larger
and
focus
on
less
risky
enterprises
than
a
CDLF
is
willing
to
finance.
Terms
and
rates
are
typically
more
favorable
than
conventional
financing.
An
RLF
can
be
administered
by
a
non-profit
organization
or
a
public
agency
and
is
not
overseen
by
any
regulatory
agency. |
Right
of
First
Refusal
A
right
given
to
non-profits
that
allows
them
to
purchase
a
property
before
it
goes
up
for
sale
to
the
general
public. |
Rotating
Savings
and
Credit
Association
RoSCA
An
informal
financial
institution
composed
of
a
group
of
individuals
who
make
regular
cyclical
contributions
to
a
common
fund,
which
is
then
returned
to
members
in
rotation. |
Run
on
a
Bank
Occurs
when
many
of
those
who
have
claims
on
a
bank
(deposits)
present
them
at
the
same
time. |
Rural
Economic
and
Community
Development
(formerly
Farmers
Home
Administration,
FmHA)
An
agency
of
the
U.S.
Department
of
Agriculture
that
makes
loans,
grants,
and
loan
gurantees
in
rural
areas
for
housing,
farming,
business,
industry,
and
community
facilities.
top
of
page
| S |
Saving
Bank
Depository
institution
historically
engaged
primarily
in
accepting
consumer
savings
deposits
and
in
originating
and
investing
in
securities
and
residential
mortgage
loans;
now
may
offer
checking-types
and
make
a
wider
range
of
loans. |
Saving
Bond
A
security
issued
by
the
U.S.
Treasury
Department.
This
bond
is
nonnegotiable
and
is
bought
from,
or
sold
back
to,
the
federal
government
at
a
set
price.
Its
principal
attraction
is
its
relative
lack
of
risk
from
price
changes,
because
it
is
not
subject
to
market
fluctuations. |
Savings
and
Loan
Associations
A
state
or
federally
chartered
financial
institution
that
accepts
savings
and
checkable
deposits
from
public
and
invests
them
primarily
in
mortgage
loans.
A
savings
and
loan
association
may
be
either
a
mutual
or
capital
stock
institution
and
may
also
make
loans
to
businesses
and
consumers. |
Section
8
A
program
of
the
Department
of
Housing
and
Urban
Development
that
provides
rental
assistance
to
low-
and
very
low-income
families.
HUD
pays
the
difference
between
the
market
rent
of
a
unit
and
the
amount
that
the
tenant
is
able
to
pay. |
Secure
Electronic
Transaction
SET
A
protocol
jointly
developed
by
Visa,
MasterCard,
and
several
technology
companies
to
facilitate
secure
credit
card
transactions
over
the
Internet.
SET
uses
public-key
cryptography
and
requires
merchants
and
consumers
to
have
authentication
keys
to
conduct
on-line
transactions.
The
purpose
is
to
secure
transactions
over
open
networks
such
as
the
Internet |
Securities
Paper
certificates
(definitive
securities)
or
electronic
records
(book-entry
securities)
evidencing
ownership
of
equity
(stocks)
or
debt-obligations
(bonds).
See
also
Definitive
Securities,
Book-entry
Securities,
Stock,
Bonds. |
Securities
and
Exchange
Commission
SEC
An
independent
agency
of
the
U.S.
government
consisting
of
five
members
appointed
by
the
President
that
administers
comprehensive
legislation
governing
the
securities
industry. |
Securitization
The
process
of
gathering
group
of
debt
obligations
such
as
mortgages
into
a
pool,
and
then
dividing
that
pool
into
portions
that
can
be
sold
as
securities
in
the
secondary
market. |
Security
Interest
The
creditor's
right
to
take
property
or
a
portion
of
property
offered
as
security. |
Seller's
Points
A
lump
sum
paid
by
the
seller
to
the
buyer's
creditor
to
reduce
the
cost
of
the
loan
to
the
buyer.
This
payment
is
either
required
by
the
creditor
or
volunteered
by
the
seller,
usually
in
a
loan
to
buy
real
estate.
Generally,
one
point
equals
one
percent
of
the
loan
amount. |
Service
Charge
A
component
of
some
finance
charges,
such
as
the
fee
for
triggering
an
overdraft
checking
account
into
use. |
Signature
Loan
Unsecured
loan
backed
only
by
the
borrower's
signature
on
an
promissory
note.
No
collateral
is
taken
by
the
lender.
These
generally
are
loans
to
individual
with
good
credit
standing
who
are
known
by
the
lending
officer.
Also
known
as
a
good
faith
loan
or
character
loan.
See
also
Promissory
note. |
Small
Business
Administration
An
independent
federal
agency
that
assists
and
advocates
for
small
businesses.
The
SBA
offers
a
variety
of
loans
and
other
types
of
financial
assistance.
The
majority
of
business
loans
are
in
the
form
of
partial
guarantees
on
loans
made
by
private
lenders.
The
SBA
offers
special
programs
for
women,
minorities,
the
handicapped,
veterans,
and
very
small
businesses. |
Small
Business
Development
Center
SBDC
Provides
management
and
technical
assistance
to
small
business
owners.
SBDCs
are
part
of
an
SBA-established
program.
They
are
generally
located
in
academic
institutions
and
are
structured
as
a
joint-venture
among
the
institution,
state
and
local
governments,
and
the
SBA.
SBDCs
make
special
efforts
to
assist
minorities,
women,
the
handicapped,
and
veterans. |
Small
Saver
Certificate
A
certificate
of
deposit
with
a
minimum
maturity
of
2
1/2
years
offered
by
banks
and
thrift
institutions
to
individuals.
The
interest
rate
on
these
certificates
is
related
to
the
average
yield
on
2
1/2-year
Treasury
securities,
in
accordance
with
regulations
issued
by
the
Depository
Institutions
Deregulation
Committee.
There
is
no
minimum
denomination
required
on
these
certificates. |
Smart
Card
A
small,
usually
plastic,
card
with
a
microprocessor
(or
IC)
chip
embedded
on
it.
It
is
therefore
"smart",
in
that
it
can
compute
(process)
and
store
financial,
health,
educational,
and
security
information.
In
contrast,
the
magnetic
stripe
on
credit
cards
and
debit
cards
enables
consumers
to
store
a
limited
amount
of
information,
or
"stored
value",
on
these
cards,
but
these
are
unable
to
process
it |
Smart
Card
Readers
POS
terminals
that
have
been
deployed
to
read
smart
cards.
Often
used
at
locations
where
there
is
a
small
transaction
value,
such
as
pay
phones,
fast-food
restaurants
or
newspaper
boxes
-
where
consumers
can
transfer
value
retained
in
a
smart
card
to
pay
for
goods. |
Society
for
Worldwide
Interbank
Financial
Telecommunicating
SWIFT
A
message
writing
system
that
connects
worldwide
participating
banks
primarily
for
the
purpose
of
communicating
payment
information.
Frequently,
the
SWIFT
message
is
only
part
of
an
international
payment
process
which
might
also
employ
a
system
such
as
CHIPS
to
fully
implement
the
transaction. |
Soft
Second
Mortgage
A
second
mortgage
that
uses
reduced
interest
rates
and
flexible
repayment
terms
to
minimize
the
debt
of
the
borrower
and
reduce
the
risk
to
the
primary
lender.
Soft
seconds
are
typically
provided
through
government
programs
to
both
housing
and
business
development
projects.
Housing
programs
primarily
target
lower-income
households.
Business
programs
usually
attach
job
creation
criteria
that
may
also
benefit
lower-income
persons
or
neighborhoods. |
Special
Drawing
Rights
SDRs
A
type
of
international
money
created
by
the
IMF
and
allocated
to
its
member
nations.
SDRs
are
an
international
reserve
asset,
although
they
are
only
accounting
entries
(not
actual
coin
or
paper,
and
not
backed
by
precious
metal).
Subject
to
certain
conditions
of
the
IMF,
a
nation
that
has
a
balance
of
payments
deficit
can
use
SDRs
to
settle
debts
to
another
nation
or
to
the
IMF. |
Specialized
Small
Business
Investment
Corporation
SSBIC
(formerly
Minority
Enterprise
Small
Business
Investment
Corporation)
Also
known
as
a
301(d)
SBIC.
A
venture
capital
firm
licensed
and
regulated
by
the
Small
Business
Administration
that
provides
debt
and
equity
financing
to
small
businesses
that
are
at
least
50
percent
owned
and
operated
by
socially
or
economically
disadvantaged
persons.
The
SBA
guarantees
the
debt
portion
of
SSBIC
investments,
allowing
them
to
leverage
private
capital. |
Stagflation
An
economic
term
used
to
describe
the
unusual
situation
of
an
economy
that
is
experiencing
severe
inflation
and
unemployment
simultaneously. |
Stakeholders
Any
party,
such
as
stockholders,
bondholders,
other
creditors,
managers,
and
employees,
who
benefits
from
the
success
of
the
company. |
Sticky
Prices
Prices
that
do
not
always
adjust
rapidly
to
maintain
equality
between
quantity
supplied
and
quantity
demand. |
Stock
It
is
a
certificate
evidencing
ownership
in
a
corporate
enterprise.
The
stock
of
a
corporation
is
usually
divided
into
two
classes,
common
and
preffered.
The
former
represents
the
basic
ownership;
its
holders'
claims
to
income
and
assets
are
subordinate
to
the
claims
of
bondholders,
creditors,
and
preferred
stockholders.
Common
stock
usually
has
the
voting
privilege.
The
holder
of
preferred
stock
always
enjoys
priority
as
to
income
and
generally
as
to
assets.
However,
his
or
her
income
is
usually
limited
to
a
definite
percentage,
regardless
of
earnings. |
Stored
Value
Card
Often
used
interchangeably
with
chip
card,
magnetic
stripe
card,
or
smart
card.
"Stored
value"
refers
to
the
information
stored
in
the
magnetic
stripe
or
microprocessor
chip.
Also,
a
card
that
stores
prepaid
financial
or
"stored
value"
via
magnetic
stripe
or
computer
chip. |
Subordinated
Debt
A
debt
that
is
ranked
lower
than
another
security
in
the
priority
of
its
claim
on
the
issuer's
assets. |
Subprime
Lending
Lending
provided
to
those
who
do
not
qualify
for
"prime"
rates,
those
rates
reserved
for
borrowers
with
virtually
blemish-free
credit
histories.
Subprime
lending
that
involves
unscrupulous
practices
is
considered
predatory. |
Surcharge
A
fee
charged
to
the
user
of
an
ATM
by
the
owner
of
that
ATM.
This
is
different
from
a
foreign
fee,
which
is
charged
by
a
bank
when
one
of
its
customers
uses
an
ATM
not
owned
by
that
bank. |
SWAP
Exchange
one
security
for
another.
A
swap
maybe
executed
to
change
the
maturities
of
a
bond
portfolio
or
the
quality
of
the
issues
in
a
stock
of
bond
portfolio,
or
because
investments
objectives
have
sifted.
Investors
with
bond
portfolio
often
swap
for
other
higher-yielding
bonds
to
be
able
to
increase
the
return
on
their
portfolio
and
realize
tax
losses. |
SWAP
Arrangements
Short-term
reciprocal
lines
of
credit
between
the
Federal
Reserve
and
14
foreign
central
banks
as
well
as
the
Bank
for
International
Settlements.
Through
a
swap
transaction,
the
Federal
Reserve
can,
in
effect,
borrow
foreign
currency
in
order
to
purchase
dollars
in
the
foreign
exchange
market.
In
doing
so,
the
demand
for
dollars
is
increased
and
the
dollar's
foreign
exchange
value
is
increased.
Similarly,
the
Federal
Reserve
can
temporarily
provide
dollars
to
foreign
central
banks
through
swap
arrangements. |
Sweat
Equity
The
equity
that
is
added
to
a
property
through
the
labor
put
into
its
improvement.
A
method
used
to
help
reduce
the
cost
of
a
home
for
low-
and
moderate-income
homebuyers. |
SWIFT
See
Society
for
Worldwide
Interbank
Financial
Telecommunication |
Symmetallism
A
monetary
standard
in
which
a
nation
will
redeem
its
currency
in
specified
proportions
of
both
gold
and
silver.
Compare
with
bimetallism,
in
which
currency
is
redeemable
in
either
gold
or
silver.
See
also
Bimetallism. |
Systemic
Risk
The
risk
that
the
failure
of
one
participant
in
a
funds
transfer
system,
or
in
financial
markets
generally,
to
meet
its
required
obligations
will
cause
other
participants
or
financial
institutions
to
be
unable
to
meet
their
obligations
as
they
come
due.
top
of
page
| T |
Tariff
A
tax
(or
taxes)
on
imports
or
exports,
most
often
calculated
as
a
percent
of
the
price
charge
for
the
good
by
the
foreign
supplier.
The
money
collected
is
duty.
A
tariff
may
be
imposed
as
source
of
revenue
for
the
government;
Schedule
of
rates
in
the
transportation
industry.
See
End-Use
Tariff. |
Thrift
Institution
An
organization
that
primarily
accepts
savings
account
deposits
and
invests
most
of
the
proceeds
in
mortgages.
Savings
banks,
savings
and
loan
associations,
and
credit
unions
are
example
of
thrift
institutions. |
Thrift
Institutions
Advisory
Council
TIAC
This
Council
was
established
following
the
passage
of
the
Monetary
Control
Act
of
1980.
Its
purpose
is
to
provide
information
and
views
on
the
special
needs
and
problems
of
thrifts.
The
group
is
comprised
of
representatives
of
savings
banks,
savings
and
loan
associations,
and
credit
unions. |
Time
Deposit
Funds
deposited
in
an
account
that
has
a
fixed
term
to
maturity
and
technically
cannot
be
withdrawn
before
maturity
without
advance
notice. |
Trade
Balance
The
net
balance
of
exports
of
a
country's
merchandise
(physical
goods,
not
including
services). |
Trade
Deficit
The
amount
of
which
a
country's
imports
exceed
its
exports,
creating
a
negative
balance
of
trade. |
Transaction
Account
A
checking
account
or
similar
account
from
which
transfers
can
be
made
to
third
parties.
Demand
deposit
accounts,
negotiable
order
of
withdrawal
(NOW)
accounts,
automatic
transfer
service
(ATS)
accounts,
and
credit
union
share
draft
accounts
are
examples
of
transaction
accounts
at
banks
and
other
depository
institutions. |
Treasury
Bills
Short-term
US
Treasury
securities
issued
in
minimum
denominations
of
$10,000s
and
usually
having
original
maturities
of
3,
6,
or
12
months.
Investors
Purchase
bills
at
prices
lower
than
the
face
value
of
the
bills;
the
return
to
the
investors
is
the
difference
between
the
price
paid
for
the
bills
and
the
amount
received
when
the
bills
are
sold
or
when
they
mature.
Treasury
bills
are
the
type
of
security
used
most
frequently
in
open
market
operations. |
Treasury
Bonds
Long-term
U.S.
Treasury
securities
usually
having
initial
maturities
of
more
than
10
years
and
issued
in
denominations
of
$1,000
or
more,
depending
on
the
specific
issue.
Bonds
pay
interest
semiannually,
with
principal
payable
at
maturity. |
Treasury
Direct
Service
provided
to
the
U.S.
Department
of
the
Treasury
whereby
Federal
Reserve
Banks
hold
book-entry
Treasury
securities
purchased
by
individuals. |
Treasury
Notes
Intermediate-term
coupon-bearing
US
Treasury
securities
having
initial
maturities
from
1
to
10
years
and
issued
in
denominations
of
$1,000
or
more,
depending
on
the
maturity
of
the
issue.
Notes
pay
interest
semiannually,
and
the
Principal
is
payable
at
maturity. |
Treasury
Securities
Interest-bearing
obligations
of
the
US
government
issued
by
the
Treasury
as
a
means
of
borrowing
Money
to
meet
government
expenditures
not
covered
by
tax
revenues.
Marketable
Treasury
securities
fall
into
three
categories-
bills,
notes,
and
bonds.
The
Federal
Reserve
System
holds
more
than
$125
billion
of
these
obligations,
acquired
through
open
market
operations.
Marketable
Treasury
obligations
are
currently
issued
in
book-entry
form
only;
that
is,
the
purchaser
receives
a
statement,
rather
than
an
engraved
certificate. |
Truncation
The
captures
of
delivery
of
MICR
line
check
data
for
all
checks,
for
specific
account
ranges
or
for
specific
accounts.
The
MICR
data
is
transmitted
electronically
with
the
receipt
of
file
constituting
legal
presentment.
Physical
items
are
retained
at
the
Federal
Reserve
Bank
for
60
days
and
microfilm/images
are
retained
according
to
applicable
statutes.
The
Federal
Reserve
Bank
will
perform
return
and
retrieval
operations
at
the
client's
request
during
this
period.
Truncation
includes
electronic
reject
repair. |
Truth
in
Lending
Act
The
popular
name
for
the
Consumer
Credit
Protection
Act
passed
in
1989.
This
federal
law
requires
disclosures
of
credit
terms
using
a
standard
format.
See
also
Consumer
Credit
Protection
Act. |
Truth
in
Lending
Disclosures
Information
sent
to
customers
at
periodic
intervals
regarding
finance
charges,
service
charges,
minimum
payment
schedule,
customer
obligations,
and
Fair
Credit
Billing
Act
requirements
for
items
in
dispute.
top
of
page
| U |
U.S.
Government
Securities
The
bonds,
notes,
and
bills
issued
by
the
U.S.
Treasury. |
U.S.
Savings
Bond
A
nonmarketable
U.S.
Treasury
Bond.
Several
series
are
outstanding,
including
series
E,
H,
EE,
and
HH.
The
U.S.
Treasury
no
longer
issues
series
E
and
H. |
UBPR
See
Uniform
Bank
Performance
Report |
Unbanked
Refers
to
individuals
that
do
not
have
a
transaction
account
with
a
financial
institution. |
Underground
Economy
The
part
of
economy
in
which
transaction
take
place
and
in
which
income
is
generated
that
is
unreported
and
therefore
not
counted
in
GDP. |
Uniform
Bank
Performance
Report
UBPR
A
report
based
on
data
from
bank
call
reports
that
is
put
together
by
the
Federal
Financial
Institutions
Examination
Council.
The
report
develops
common
data
and
ratios
that
allow
standard
comparisons
of
banks.
Members
of
the
council
include
the
Federal
Reserve
Board,
Office
of
the
Comptroller
of
the
Currency,
Federal
Deposit
Insurance
Corporation,
Federal
Home
Loan
Bank
Board,
and
National
Credit
Union
Administration.
See
also
Comptroller
of
the
Currency,
Board
of
the
Governors,
Federal
Deposit
Insurance
Corporation,
Federal
Financial
Institutions
Examination
Council,
Federal
Home
Loan
Bank
Board,
National
Credit
Union. |
Uniform
Commercial
Code
UCC
A
coordinated
code
of
laws
governing
the
legal
aspects
of
business
and
financial
transactions
in
the
United
States
(except
Louisiana.
It
regulates
such
topics
as
the
sale
of
goods,
commercial
paper,
bank
deposits
and
collections,
letters
of
credit,
bulk
transfers,
and
documents
of
title.
It
defines
the
rights
and
duties
of
the
parties
in
a
commercial
transaction
and
provides
a
statutory
definition
of
commonly
used
business
practices. |
Unsecured
Credit
Credit
extended
on
the
borrower's
promise
to
repay
the
debt,
and
for
which
collateral
is
not
required. |
Unsecured
Debt
A
debt
instrument
not
backed
by
the
issuer's
pledging
of
assets.
Unsecured
bonds
are
called
debentures. |
Usury
Interest
charges
that
are
higher
than
allowed
by
the
law.
| V |
Variable
Rate
A
variable
rate
agreement,
as
distinguished
from
a
fixed
rate
agreement,
calls
for
an
interest
rate
that
may
fluctuate
over
the
life
of
the
loan.
The
rate
is
often
tied
to
an
index
that
reflects
changes
in
market
rates
of
interest.
A
fluctuation
in
the
rate
causes
changes
in
either
the
payments
or
the
length
of
the
loan
term.
Limits
are
often
placed
on
the
degree
to
which
the
interest
rate
or
the
payments
can
vary. |
Velocity
The
rate
at
which
money
balances
turn
over
in
a
period
for
expenditures
on
goods
and
services
(often
measured
as
the
ratio
of
GNP
to
the
money
stock).
A
larger
velocity
means
that
a
given
quantity
of
money
is
associated
with
a
greater
dollar
volume
of
transactions |
Verification
An
auditing
process
during
which
the
auditor
contacts
a
bank
customer
directly
to
confirm
the
bank's
records
regarding
a
loan
or
deposit
balance. |
Volatility
Variability
in
the
price
of
financial
instrument.
Expected
volatility
is
a
variable
used
in
pricing
options.
| W |
Warehousing
The
borrowing
of
funds
by
a
retail
lender
on
a
short-term
basis
using
permanent
mortgage
loans
as
collateral.
This
form
of
interim
financing
is
used
to
raise
funds
to
make
mortgages
and
carry
them
until
the
mortgages
are
sold
to
a
permanent
investor. |
White
Plastic
A
fraudulent
merchant
procedure
involving
t
he
use
of
embossed
plastic
that
is
not
a
real
credit
card. |
Wholesale
Banking
The
provision
of
bank
services
to
large
corporation
and
other
nonretail
entities. |
Wholesale
Financing
The
process
of
financing
products
sold
to
a
dealer
in
goods |
Will
A
document,
also
called
testament,
that,
when
signed
and
witnessed,
gives
legal
effect
to
the
wishes
of
a
person,
called
a
testator,
with
respect
to
disposal
of
property
upon
death. |
Wire
Transfer
Electronic
transfer
of
funds;
usually
involves
large
dollar
payments.
See
also
Funds
Transfer. |
Working
Papers
Working
papers
are
research
studies
intended
for
academic
audiences
on
various
macroeconomic
and
microeconomic
topics
and
are
intended
to
generate
comments
and
suggestions
regarding
research
in
the
paper.
See
Also
Macroeconomic,
Microeconomic. |
World
Bank
See
International
Bank
for
Reconstruction
and
Development |
Wraparound
A
financing
device
that
permits
an
existing
loan
to
be
refinanced
and
new
money
to
be
advanced
at
an
interest
rate
between
the
rate
charged
on
the
old
loan
and
the
current
market
interest
rate.
The
creditor
combines
or
"wraps"
the
remainder
of
the
old
loan
with
the
new
loan
at
the
intermediate
rate.
X
| Y |
Yankee
Bond
A
foreign
bond
denominated
in
U.S.
dollars
and
registered
with
the
Securities
and
Exchange
Commission
for
sale
in
the
United
States. |
Yield
The
return
on
an
investment,
expressed
as
percentage
of
the
price
originality
paid
for
it.
If
the
investment,
such
as
security,
is
to
be
sold,
its
yield
is
its
return
expressed
as
a
percentage
of
its
current
market
price. |
Yield
Curve
A
chart
in
which
yield
levels
are
plotted
on
the
vertical
axis
and
the
terms
to
maturity
of
debt
instruments
of
similar
creditworthiness
are
plotted
on
the
horizontal
axis. |
Yield
Maturity
The
average
maturity
yield
a
fully
amortized
loan,
that
is
held
by
an
investor
for
the
life
of
the
loan.
The
average
rate
takes
into
the
account
the
fact
that
the
outstanding
principal,
and
consequently
the
amount
of
interest,
declines
each
year
until
the
loan
is
fully
paid.
When
the
term
is
used
in
reference
to
a
bond
paid.
When
the
term
is
used
in
reference
to
a
bond
or
security,
it
means
the
average
annual
rate
of
return
of
the
security
when
held
to
maturity,
taking
into
account
discounts
or
premiums
paid
when
the
security
is
purchased
and
capital
gains
or
losses.
| Z |
Zero
Rate
Mortgage
A
mortgage
that
requires
a
hefty
down
payment
with
a
one-time
finance
charge,
after
which
the
mortgage
is
repaid
in
monthly
installments.
Because
the
term
of
the
loan
is
so
short,
it
appears
to
be
nearly
interest
free. |
Zero-Coupon
Bond
A
security
sold
at
a
deep
discount
from
its
face
value
and
redeemed
at
its
full
face
value
at
maturity.
These
bonds
pay
no
interest.
Instead,
the
investor's
return
is
the
difference
between
the
purchase
price
of
the
bond
and
its
face
value
when
redeemed.
top
of
page
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