Banking/Related Articles

Glossary

• Basel I & Basel II [r]: international banking regulations put forth by the Basel Committee on Bank Supervision of the Bank for International Settlements requiring banks' minimum capital adequacy ratios to be related to the riskiness of their loans. ^[e]
• Bill of Exchange [r]: A written order to pay the holder a stated sum of money at a stated date (otherwise known as a "draft", the person who is paid being termed the "drawer"). ^[e]
• Capital adequacy ratio [r]: The ratio of a bank's capital to its risk weighted credit exposures. May be defined in terms of tier 1 (core) or tier 2 capital. ^[e]
• Central Bank [r]: A government agency that is responsible for monetary policy and the support of the banking system (for example the Federal Reserve Board and the Bank of England). Usually responsible for controlling a country's monetary policy and preserving the value of its currency. ^[e]
• Commercial paper [r]: unsecured debt_instruments that are issued by corporations to meet short term financing needs (usually repayable after 3 months). ^[e]
• Credit risk [r]: The risk that the value of a loan-based security will fall as a result of defaults on the part of borrowers (as distinct from interest rate risks and exchange rate risks). ^[e]
• Debt_instrument [r]: A formal obligation assumed by a borrower to replay the lender in accordance with the terms of an agreement, including bonds, debentures, promissory notes, leases and mortgages. ^[e]
• Derivative [r]: An asset whose value depends upon the expected value of another asset. ^[e]
• Discount_rate [r]: (i) The percentage by which current value exceeds value in a year's time. (ii) The rate at which banks may borrow at their central bank's discount window. ^[e]
• Discount window [r]: A facility provided by central banks that enables a bank to make secured short-term loans at its central bank's discount rate. ^[e]
• Draft (finance) [r]: Another name for a bill of exchange (termed "bank draft" if issued by a bank: otherwise "trade draft"). ^[e]
• Interbank market [r]: a market in which a group of banks lend to each other (for example, see LIBOR). ^[e]
• Interest rate risk [r]: The risk that the value of a fixed-rate security or loan will fall as a result of a rise in interest rates. ^[e]
• Leverage [r]: (i) The use of borrowing to increase the amount of money that is available for investment or consumption. (ii) A proportional measure of indebtedness, such as the ratio of a company's debt to its shareholders' equity (the same as British "gearing"), or the ratio of the indebtedness of a household to the net value of its assets (ie net of its debts). ^[e]
• LIBOR [r]: (London Interbank Offer Rate) the rate of interest at which a group of banks (16 banks from seven countries, including the United States, Switzerland and Germany) are willing to lend to each other for periods ranging from a day to a year . ^[e]
• Liquidity [r]: (i) The quantity of available assets in its possession that an organisation could rapidly exchange for cash (assets that cannot be exchanged for cash at a particular time are considered to be "illiquid" at that time); (ii) the funding that is unconditionally available to settle claims through monetary authorities (termed "official liquidity"). ^[e]
• Liquidity risk [r]: the risk that assets cannot be sold at time when cash is needed to meet a commitment. ^[e]
• Margin account [r]: an arrangement that enables customers to buy securities with money borrowed from a broker, subject to a minimum maintenance level related to the market values of the securities. ^[e]
• Margin call [r]: a demand for the additional securities required to maintain the minimum maintenance level of a margin account when security prices fall. ^[e]
• Market risk [r]: The risk that the value of an investment in a financial product will fall as a result of a fall in the market for that product. ^[e]
• Money market [r]: A market for short-term debt instruments (generally of maturity after less than one year) such as certificates of deposit, commercial paper, and Treasury bills. ^[e]
• Moral hazard [r]: Motivation to take an otherwise unwarranted risk because the cost of an unfavourable outcome would be borne by someone other than the risk-taker. ^[e]
• Prime rate [r]: The interest rate that commercial banks charge for loans involving the lowest risk of default - such as loans to large companies. ^[e]
• Securitisation [r]: The conversion of a cash flow into a marketable security (usually a claim upon debt repayments) and often categorised according to the expected risk of default (examples include collateralised debt obligations and structured investment vehicles.) ^[e]
• Structured investment vehicle [r]: (SIV) a fund that borrows money - usually at LIBOR rates - by the issue of asset backed commercial paper and uses it to finance longer term loans at higher interest rates. ^[e]
• Value at risk [r]: Add brief definition or description
• Wholesale banking [r]: Add brief definition or description