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Principle of Banking
Chapter 2
| Term | Definition |
|---|---|
| Financial Intermediary | a financial institution that facilitates the exchange of funds between savers and spenders by taking in funds from savers and then lending those funds to borrowers and investors. |
| Monetary Policy | the management of a nation’s money supply by a central bank, such as the Federal Reserve, to ensure the availability of credit in quantities and at interest rates consistent with specific economic objectives. |
| Discount Operations | a tool of monetary policy in which banks borrow funds from the Federal Reserve. These loans, priced at the discount rate, help reduce liquidity problems for banks and maintain stability of financial markets. |
| Open-Market Operations | the purchase and sale of U.S. Treasury and federal agency securities by the Federal Reserve to influence the growth of the nation’s money supply. They are the principal means by which the Federal Reserve implements monetary policy. |
| Federal Funds | excess reserves that banks deposit at Federal Reserve Banks and are made available for other banks to borrow, generally for a very short period of time such as overnight. |
| Federal Discount Rate | the rate the Federal Reserve charges on its loans to banks. |
| Federal Funds Rate | the rate banks charge one another for overnight loans of reserve funds held at Federal Reserve Banks. |
| Prime Rate | the interest rate a bank offers its most creditworthy customers and the base rate used to set interest rates for other loans. |
| Corporation | a business organization treated as a legal entity and owned by a group of shareholders (stockholders). The shareholders elect the directors, who serve as the governing body managing the corporation’s affairs. |
| Board of Directors | the governing body of a corporation ultimately responsible for its financial performance, consisting of individual directors elected by the shareholders. |
| De Novo Bank | a bank that has been in operation for five years or less. Commercial banks operating go give ears or less that convert to Federal Reserve membership are subject to the de novo bank applications and supervision standards. |
| Equity | the investment interest of all shareholders in a corporation, equaling the excess of assets over liabilities and including common and preferred stock, retained earnings, surplus and reserves. |
| Lease Financing | a specialized area of finance dealing with renting property owned by a lender, financing the leases of a company engaged in rentals, or financing the purchase of an item to be leased out by the borrower. |
| Liquidity | (1) the ability of a business to meet its current obligations or to take advantage of new investment opportunities (2) the quality of an asset that makes it readily convertible to cash without significant loss. |
| Statement of Condition (balance sheet) | a detailed list of a company’s assets, liabilities, and capital (equity) on a specific date. |
| Profit and Loss Statement (income statement) | summary of revenue, expenses, and net income earned by a company during a stated period, such as a quarter or a year. |
| Insolvent | a position where liabilities exceed assets, resulting in the party being unable to meet its debt obligations. |
| Illiquid - | deficient in assets that can be quickly used to meet current obligations. |
| Correspondent Bank | a bank, often a large bank, that maintains an account relationship or engages in an exchange of services with another, usually smaller, bank. Sometimes called upstream correspondent bank. The bank that uses the services is the respondent bank. |
| Matched Funding | an asset and liability management technique in which assets are financed with liabilities of the same maturity or duration. |
| Fiscal Year | the 12 month period selected by a business or government as an accounting period, at the end of which the books are closed and profit or loss determined it may correspond to the calendar year. |
| Creditworthiness | the ability and willingness to repay a debt, largely demonstrated by the borrower’s credit history. |
| Securities | financial instruments such as stocks (equity securities) or bonds (debt securities) that have value and are easily bought and sold between parties. |
| Credit Risk | the risk that the borrower cannot or will not repay a loan with interest as scheduled. |
| Market Risk | the risk that the market value of a security or other asset will decrease because of interest rate changes and other market conditions. |
| Collateral | specific property or other assets pledged by a borrower to secure a loan. If the borrower defaults, the lender has the right to sell the collateral to liquidate the loan. |
| Dividend | payments made by a corporation to its stockholders. The payments are based on a percentage of the corporation’s after-tax earnings and are usually made quarterly. |
| Consumer Price Index | a measure of the average change over time in the prices paid by consumers for selected goods and services. It represents whether prices are rising or falling in the U.S. economy and, thus, whether there is inflation or deflation. |
| Noninterest Income | income a bank derives from sources other than interest, for example, fees and service charges, trading income, and investment securities gains. |
| Certified Public Accountant | accountant licensed to practice public accounting to earn this title, a person must pass the Uniform Certified Public Accountant Exam and meet other requirements established by each state for education and experience. |
| Audit | An official examination and verification of accounts and internal controls, usually by an independent accountant, to determine whether financial information is accurate and prepared in conformity with generally accepted accounting principles (GAAP) |
| Annual Report | managements summation of the bank’s achievements over the course of the year |
Created by:
Sharon.Spence
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