Banking > Related Articles

From Citizendium, the Citizens' Compendium

Index

See the related articles subpage to the article on economics [1] for an index to topics referred to in the economics articles.

Glossary

(For definitions not shown below, see the economics glossary [2])

• Asset-backed commercial paper [r]: Add brief definition or description
• "Bad bank" [r]: A subsidiary, or separate corporation, created to hold and manage non-performing assets transferred to it by a rescued bank. [e]
•   Banking panic - see Panic (banking)
• 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]
• Bubble (economics) [r]: A surge in prices that raises irrational expectations of further increases, so generating further increases, and so on: a process that continues until confidence falters, the bubble "bursts" and prices suddenly revert to a rationally-based level. [e]
• Capital adequacy ratio [r]: The ratio of a bank's capital to its assets. [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 Bank 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 easing [r]: A shift in the composition of the assets of the central bank towards less liquid and riskier assets (in order to reduce credit spreads and improve the functioning of private credit markets) - also known as qualitative easing. [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. [e]
• Debt_instrument [r]: a formal obligation assumed by a borrower to replay the lender in accordance with the terms of an agreement. Debt instruments include bonds, debentures, promissory notes, leases and mortgages. [e]
• Derivative [r]: In finance, an asset whose agreed value depends upon the expected value of another asset. A typical example is a futures contract which is an undertaking to buy a stipulated asset at a stipulated price at a stipulated future time. Other examples are options and futures contracts. Some derivatives can be used for hedging against risk. [e]
• Discounting [r]: Selling a bill of exchange to a bank before its due payment (or "maturity") date "at a discount": that is to say after paying the bank a fee for accepting it. More generally, the selling of an asset for less than its puchase price, nominal or "par" value. [e]
• Discount_rate [r]: (i) The percentage by which the current value of an asset (to a person or to a commercial organisation) exceeds its value in a year's time. For a person, it is equal to that person’s marginal rate of substitution between consumption in the two successive years. For a financial asset it is the ruling risk-free interest rate. For a commercial organisation, it is equal to that organisation’s cost of capital. (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]
• Federal funds rate [r]: The overnight interest rate at which banks lend balances at the Federal Reserve to other banks. [e]
• Fiat money [r]: money whose value is determined solely by government order, or "fiat" (as distinct from commodity money that has value because of its scarcity or cost of production). [e]
• Great moderation [r]: the period between 1980 and 2007 during which the volatility of US output was less than half that of the preceding post-war period. [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]: The use of debt to make investments. The ratio of a company's debt to its capital assets. (the same as British "gearing") [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]: 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). [e]
• Liquidity risk [r]: the risk that assets cannot be sold at time when cash is needed to meet a commitment. [e]
• Liquidity trap [r]: a state of the economy in which an expansionary monetary policy has no effect upon output. [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]
• Monetary base [r]: currency in circulation plus bank vault cash plus deposits held by banks at the central bank (termed "high-powered money" in the US, and referred to as M0 in the UK). [e]
• Money supply [r]: the economy's stock of those assets that can be quickly exchanged for goods and services. [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 thae product. [e]
• Monetary base [r]: currency in circulation plus bank vault cash plus deposits held by banks at the central bank (termed "high-powered money" in the US, and referred to as M0 in the UK). [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]
• Open market operation [r]: The buying and selling of government securities in order to influence the level of banking reserves. [e]
• Panic (banking) [r]: a self-fulfilling fear of default. [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]
• Qualitative easing [r]: A shift in the composition of the assets of the central bank towards less liquid and riskier assets (in order to reduce credit spreads and improve the functioning of private credit markets) - also known as credit easing. [e]
• Quantitative easing [r]: An increase in the central bank's monetary liabilities as a result of its purchases of corporate or government securities. [e]
• Reserves (banking) [r]: A bank's holding of deposits at its central bank plus the currency held in its vaults. [e]
• Reserve ratio [r]: The ratio of a bank's reserves to its deposits. [e]
• Run (banking) [r]: An attempt by a large number of investors to withdraw their deposits. [e]
• Securitisation [r]: the conversion of a cash flow into a marketable security (usually the offer for sale of claims upon debt repayments, and often categorised according to the expected risk of default. Examples include colateralised debt obligations (CDOs) and structured investment vehicles (SIVs).) [e]
• Sterilisation, monetary [r]: Action taken by a central bank to counteract changes to its monetary base - for example by buying or selling government securities. [e]
• Stress test (banking) [r]: a test of the adequacy a bank's capital structure by estimating the consequences for it of an imaginary recession. [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]: The maximum possible loss in the value of an asset within a given time span and at a given confidence level. [e]
• Wholesale banking [r]: transactions other than those with a bank's retail customers. Includes trading in derivatives and in the interbank markets, stock markets and foreign exchange markets. [e]