Banking Vocabularies Page 2

Federal Funds Rate

Federal funds rate is the interest rate at which depository institutions trade balances held at the Reserve Bank of a country.

Institutions that have surplus balance lend some to those institutions that are in need of balances at an interest rate that both banks agree on. The average of this rate across all such transactions is the federal funds effective rate.

In the financial market, federal funds rate is an important yardstick.

Financial Instrument

A financial instrument is any and all that involves trading of cash, assets etc. A check or currency notes are a commonly used financial instruments. Any written and authenticated evidence that reveals that a transaction or an agreement existed is a financial instrument.

Field Audits

Field audits are conducted by bank officials on the site to assess the condition and status of the collateral. They are also done to assess the financial condition of debtors especially corporations who have taken large loans. They are done to make sure that borrower is able to pay back the loan.

Fixtures

It is a term used for real estate property when assets such as furniture etc. are attached to the value of the real estate. Many banks have been including fixtures in the total value of a real estate property that is pledged as collateral.

Financial Statement

A financial statement includes the financial figures, details of financial transactions, reports, a record of assets and liabilities, income, capital, expenditure etc.

Grace Period

Grace period is the time period during which a depositor can withdraw funds from a certificate without any penalty.

Guaranty

A guaranty is an agreement between a person, a partnership or a corporation to a bank to repay the borrowed money if the borrower is unable to pay it.

Guidance Line of Credit

Also called an unadvised line, guidance line of credit is a line of credit that is approved by a bank, but is not revealed to the borrower until some specific event. It is generally done by a request for funding from a borrower.

Government Bonds

Any security that is offered by the government and has the highest possible rate of interest is known as government bonds. Government bonds are also called government security.

Gross Dividends

The total amount of dividends earned by a person or a company in a single accounting tax year is known as gross dividends. It should be kept in mind that capital gains are also included in gross dividends.

Grace Period

A grace period is a time period where no interest is to be given by the debtor to the creditor. This happens after the period of the loan is over or before the process of loss recovery is initiated. The length of the grace period depends upon the credit score of the borrower and the amount of loan borrowed by the debtor.

Garnishment

Garnishment or Garnish is a legal process through which a creditor can remove funds from your bank if you failed to pay the debt on the agreed time. The creditor can obtain a court order directing your bank to withdraw money from your account to pay off the debt.

Health Savings Account

Health savings account is a bank account with a health insurance policy. It is an account that bears interest that can be used like a checking account. Generally, funds in health savings account are tax free.

Hot Money

This is an informal phrase used for funds that are provided by the largely case-sensitive and credit quality-sensitive sources. These are bank liabilities that are risky and are likely to be lost quickly when there is a loss of competitiveness or confidence.

Hold

Hold is a process by which a bank holds funds deposited by checks.

also called second mortgage or borrowing against your home.

Home Equity Loan

Homeowners use home equity loans to make home improvements, to buy a new car, finance their child’s education etc. Home equity loan allows you to know your home’s built-up equity, which is the difference between the amount at which your home could be sold and the amount that you owe. The interest paid on home equity loan is usually tax deductible.

In case of default, the bank may take the ownership of your house. This kind of loan is also called second mortgage or borrowing against your home.

Hedge

Hedge is used to minimize the risk involved in a particular investment and get maximum returns of an investment. A hedge strategy is implemented with the help of a hedge fund.

A hedge fund is an investment fund that undertakes a range of investment and trading activities other than just funds. Investors in hedge funds are typically institutions or individuals with high net worth. Hedge funds most commonly invest in liquid securities on public markets. They also use many strategies such as short selling and leverage.

Household Income

Household income is the net income of all the members of a household put together. If there is a family business being run by some members of a family, then it is also counted in the household income.

Holding Period

Holding period is the time during which a capital asset is owned or held by a person or a company. The holding period is considered when pledging the asset as collateral. For example, if a house you own is held by you or has been owned by you for a year, it will be considered before you can get a loan using it as collateral.

International Bank Account Number (IBAN)

IBAN is a unique international account number that identifies a holder of an account. It includes the country code, check digit, bank code and account number. It is usually used for international payment or receivables.

Interest Leases

Interest lease is a form of lease financing. In it, a bank finances or acquires a lease transaction that is entered into by an end user and a third party. In this case, the bank is the lender if it only finances the transaction, the end user is the lessee.

Indemnification Agreement

This is an agreement in which a borrower claims to protect a bank by reimbursing the bank for damages, penalties, liabilities, claims, costs etc. that may arise due to some problem. The problem may arise from environmental contamination, violations of environment regulations or some such reason.

Individual Retirement Account

Individual retirement account is a tax free investment account for retirement. These accounts are limited by age and income.

Interest Rate

 

Interest rate is the percentage at which financial institutions like banks charge borrowers of money interest for using the money they have borrowed from them.

 

Companies and individuals borrow money from banks to buy assets or goods that they are unable to buy with their savings. Creditors, on the other hand, receive interest on their money. Interest rates are usually presented in the form of the percentage within a period of one year.

Interest rates are taken into consideration while dealing with inflation, unemployment, investments etc.

Variations in interest rates are mostly due to change of policy by the Federal Reserve Board (the national reserve bank) or may be due to inflation etc.

Investment

Investment in financial terms refers to the putting of money into something with the expectation of gain. When a person invests in something, s/he expects a high degree of security for the principal amount invested and also a security of return.

People invest in real estate, shares, stock, mutual funds etc. Investment is done with thorough analysis unlike gambling, and that is why there is a high degree of security in it. The case of stock exchange is a little different. Though investors in the share market use thorough analysis of stock data, but because of the highly uncertain nature of the stock market, it is mostly called speculation and not investment, especially when the investment is short-term.

Investment is done in business management and finance, whether it is for firms, households or government.

Insolvency

Insolvency is the inability to pay one’s debts when they become due. Insolvency is usually used for businesses, rarely for individuals. When a company is unable to pay its debts, it is called insolvency.

Insolvency in businesses is of two types: Cash flow insolvency and Balance sheet insolvency. In Cash Flow insolvency, a company is unable to pay debts as they fall due. In Balance sheet insolvency, a company has negative net assets, i.e., their liabilities exceed assets. Insolvency does not mean bankruptcy because it is not ruled by a court of law.

Index-linked Certificate of Deposit

It is a deposit obligation of the issuing bank. It is sold through bank branches, affiliated banks and unaffiliated banks. Index-linked CDs (Certificate of Deposit) gives the investor the ability to participate in the appreciation of a particular index during the term of the CD.

They may have complex payout structures that keep many investors away from them. An investor should carefully review the risks in the relevant offering documents and disclosure statements. Index-linked CDs are not securities.

Installment Credit

Installment credit is a loan or a debt which is supposed to be returned back to the lender in a specified periodic instalment. Types of loans that come under installment credit are home loans, auto loans and so on. 

Judgement Clause

A judgement clause is promissory notes or guaranties provided by a bank. In it, the borrowers or guarantors authorize a bank to create a judgement lien. The bank needs to take the documents to a court. Many states of some countries do not allow judgement clauses.

Joint Account

A joint account is a bank account that is owned by two people instead of one. Both owners of the account have equal rights over it. They are eligible to write checks, withdraw cash and manage the account together or solely. Either of the two owners can be held responsible for repayment to the bank. Usually, marriage partners and/or parent and child open joint accounts.

Judgement Clause

Judgement clause is a provision regarding bank notes or other guarantees that include the authorization of the borrowers or sureties presented to a bank to make a judgement lien after the completion of the legal instruments.

Jump Z-Tranche

It is a real estate mortgage investment conduit (REMIC) that obtains principal sums before earlier tranches are not active.

Junior Debt

Junior debt is the responsibilities of an issuing institution for which quittance has been thought contractually as a priority of miscellaneous liability of the same debtor.

Joint and Several Liability

It is a legal term that is used to point that two or more entities are responsibly individually for liability rather than being collectively responsible for it.

Kiting

Kiting occurs when a person writes a check for an amount that will overdraw the account, but s/he makes up for the deficiency by depositing another check in the bank.

For example, you mailed a check when you do not have sufficient balance in your account to pay for the check. Realizing the mistake, you write another check, depositing enough money in your account to pay for the earlier check. To avoid a bounced check, you can only count on your bank receiving your check early and the collector to cash your check late.

Knot Points

Knot points are points on the yield curve for which there are noticeable rates for the traded instruments.

Kappa

Kappa is a Greek term used in the banking sector to relate to the sensitiveness of an option’s rate to changes in the unpredictability cost.

Key Rate Duration

Key rate duration is a measure of duration that calculates efficient or empirical duration by changing the market price for a particular maturity date on a yield curve while keeping all other variables stable.

Liability Management

This is the general banking strategy that focuses on management of the amount, maturity, cost of deposits and purchased funds. Bankers make loans and loan commitments to meet market conditions. Liability managers fluctuate the amount of funds received by the bank so that it can provide whatever funding is needed at any time.

Liquidity Risk

There is always a risk that not enough cash will be generated from assets or liabilities for a bank to be able to meet its cash requirements. In other words, a bank’s earnings are so less that it is unable to meet its obligations. That is why for a bank, cash requirements are mainly made up of deposit withdrawals or contractual loan funding.

Loan-to-Value Ratio

This ratio refers to a credit analysis ratio that measures collateral coverage. For calculating the loan-to-value ratio, a borrower’s total obligations to a bank is divided by the calculated value of the collateral.

Lockbox

Lockbox is an arrangement that is made to reduce delays in depositing funds into a payee’s bank accounts. It is used to accelerate deposits to a bank by removing internal processing by the payee. The account debtors can mail their payments into a post office box controlled by the bank.

Loan to Value Ration

The ratio between the principal amount of loan on which it is borrowed, and the appraised value, i.e. the selling price, is called loan to value ratio. The lower the LTV, the better the program is for the lenders.

Letter of Credit

It is a letter issued by a bank on behalf of the buyer. It states that the buyer will pay to a third party, i.e. the seller, a specific amount of money for the purchase of goods. The seller is required to meet the conditions given in the document and submit it to receive payment.

Letters of credit are generally used in international trade where huge amounts of money change hands and where the buyer and the seller live in different countries.

Liquidated Damages

This is a clause that is present in contracts where parties agree to pay a fixed amount if there is a breach of the contractual provisions. The party who breaks the agreement is required to pay the amount to the aggrieved party under liquidated damages.

Land Flip

Land flip is a term used for real estate fraud where the price of undeveloped real estate is artificially escalated, and are often above fair market value. This is done by a group of conspiring buyers, who buy and resell the property among themselves many times, each time raising its price. When the price becomes artificially high after many sells and buys, they sell the property or raise a loan for its development.

Lease

A lease is a contract through which the owner of real estate allows another to use the property for a specified period in exchange for a value called rent. The owner of the property leases it out to person/s who then get the right to live in that place in exchange for a specified amount of cash. Typically, a written agreement is done for legal purposes.

Loss Given Default

Loss given default is a term used for the loss incurred by a bank in case a debtor is unable to pay back a loan. If there is collateral pledged by the debtor, its value or the value of other assets is reduced from the principal loan amount, and the remaining balance is called loss given default.

Land Contract

Land contract, also known as article of agreement, is a land contract where a buyer pays through periodic instalments to the seller to buy a real estate. It should be noted that the payer is not given full rights over the property till s/he has paid the full amount.

Money Market deposit Account

This is a bank deposit account that is designed to pay a higher interest rate than can be earned from a savings or a checking account. It does not have specific maturity. Although the interest rates are influenced by the market, the bank administers these rates.

Mortgage Waiver

A mortgage waiver is a document that is used by secured lenders who have interest in property covered by a mortgage granted to a different lender. A mortgage waiver may also be used when a tenant is granting its lender a security interest in property that might be fixtures subjected to a mortgage arranged by a landlord to the lender.

Maintenance Fees

A maintenance fee is a periodic charge that is taken for the maintenance of a bank account. Some banks do not have any maintenance fee for their accounts; some waive a fee when a specific minimum balance is held in the account of a customer.

Money Market Account

It is a kind of savings account that usually pays more than usual interest, but has withdrawal limits and transaction limits set. Many money market accounts offer the same services as checking accounts, but have restrictions.

Money Market Fund

This is an open-ended mutual fund that invests in short-term debts, Treasury bills, and other such monetary instruments. It usually offers check writing privileges.

Money Market Deposit Account

It is a savings account where you get a higher rate of interest in exchange for large deposits. These accounts, however, have a limit to the number of transactions allowed.

Mutual Fund

Mutual fund is a fund operated by an investment company. It raises money from shareholders and invests it in bonds, stocks, commodities, short-term money market securities and/or other securities. A mutual fund is professionally managed and is a collective investment scheme.

Some of the advantages of mutual fund are increased diversification, daily liquidity, professional management, government oversight, service and convenience and ease of comparison. However, there are some limitations such as fee, less control, less predictable income and no chance to customize.

Minors Account

A child under the age of 18 is a minor, but there are ways in which a minor can own investments. The money that is in a minor’s name is handled by a custodian (usually the parent). The parent has the responsibility to handle the finances in the child’s name in a prudent manner for the child’s benefit. The parent cannot withdraw that money to use it for him or her.

Monetary Policy

As its name suggests, monetary policy is the process that controls the supply of money done by the monetary authority of a country. It is aimed at promoting economic growth and stability of the country.

The goal of any country’s monetary policy are stable prices, low unemployment and stability in the market, which is done by either the expansionary policy (where supply of money is increased rapidly) or the contractionary policy (where supply of money is increased slowly than usual). The policy depends on world economy and its affect on the country’s economic situation.

Market Liquidity

Market liquidity is an asset’s ability to be sold without much difference to its actual price and with minimum loss of value.

Cash is the most liquid asset because its value does not change in the short-term. Major economic events can, however, affect the market liquidity of cash. Moreover, it can instantly be used for economic actions such as buying, selling, investing, paying debt etc.

Exchange of a less liquid asset with a more liquid asset is called liquidation. In banking, liquidity is the ability to meet obligations when they are due and without inviting major losses. Bankers monitor and project cash flows everyday to ensure that adequate liquidity is maintained in their bank. For that, they need to create a balance between short-term assets and short-term liabilities.

Non-Sufficient Funds

When a bank account does not have enough money to cover for checks or other financial transactions, then it is called non-sufficient funds or insufficient funds.

Overdrafts

An overdraft happens when you take out money from your bank when your account balance is zero. In such a situation, the account balance is said to be overdrawn.

An overdraft is the form of credit that is given out to an account holder by a bank even when there is no money in the account. It is a kind of loan and therefore the account holder needs to pay interest on the overdraft’s loan balance. Most financial institutions use overdraft accounts to prevent checks from bouncing.

Overdrafts may occur due to an account holder’s negligence regarding his/her correct account balance. It may also occur due to overspending. Some ATMs also allow a customer to withdraw money above the current balance of an account holder.

Some people use overdrafts to tackle short-term financial problems, but a bank only allows borrowing of money through overdrafts to a specified limit.

Offshore Banking

Offshore Banking is banking that is conducted in a bank outside the depositor’s own country. A person uses offshore banking where the taxes are less and there are other financial and legal benefits to be enjoyed. Some offshore banks provide bank secrecy, easy access of deposits, protection against their country’s political, economic and financial risks. Switzerland and Luxembourg are well-known offshore banking havens where people from all over the world keep bank accounts for certain benefits.

Even though offshore banks have no liability to declare their financial transactions, individual account holders of offshore banks are obliged to declare their income in offshore banks to their country’s revenue service. Many people had recently been caught hiding their money in offshore banks and received heavy punishment for withholding the information about their actual income from their government.

Operating subsidiary

Operating subsidiary are companies that conduct some of the banking activities of national banks. These companies are owned and controlled by a national bank. It offers its services in banking products and services such as mortgages, loans and leases.

Open-End Credit

When a credit agreement, usually a credit card, allows a customer to borrow against a preapproved credit line, it is called open-end credit. It is also called a charge account or a revolving credit.

Online Banking

Online banking is a service that allows an account to get account information, manage their transactions or get any other information regarding the bank or his/her account through a computer. The bank’s website is accessed by the account holder. Online banking is also called Internet banking or electronic banking.

Offsetting

When the credit balance in a current or savings account are netted off against an account holder’s borrowings such as mortgage so that the rate to be paid on the borrowing is reduced because of the credit that is held in other accounts, then it is called offsetting.

Overdraft Protection

Overdraft protection is a service that allows a verification account to be connected to other line of credit or savings for protection against overdrafts.

Ordinary Dividends

Ordinary dividends are distribution of the profits of a company.

Online-Only Bank

An online-only bank is a bank that only has an online presence and does not exist in a physical environment. An online-only bank might have partnerships/relationship with a physically located bank through which it takes care of physical checks etc. The different between a physically present bank and an online bank is that the account is opened online and is maintained entirely online.

Non-notification

Non-notification happens when a borrower’s account debtors are not informed about the bank’s lien. Payment can be directly sent to the bank by account debtors under non-notification.

PIN (Personal Identification Number)

A personal identification number (pronounced ‘pin’) is a password that you use to gain access to a system. In banking terms, a PIN is used to access an ATM (Automated Teller Machine). A PIN is used by a bank to verify your identity.

 

The unique numbers that are given to you as your PIN number (For example: 7945) for a particular bank account along with the bank authorized ATM card are inserted into an ATM machine to get access to the money in your account.

PIN numbers are also used for credit cards, point of sale and debit cards. All these PIN numbers are to be kept secret because of the dangers of Phishing.

Passbook

A passbook is a small paper booklet that has the record of all the transactions of an account such as deposits, withdraws and earnings of a customer’s savings account. It records the date on which the transactions took place.

The size of the passbook varies from country to country. With technological changes, now some banks provide a concise summary of transactions through ATM too.

Postdate

Postdate is when a banking transaction takes place or is to take place later than the actual date. Postdate is generally used for checks that are dated in the future.

Many banks honor postdated checks, even if they are deposited before the date specified on the check. They hold the check until it reaches the date specified on the check and then cash it.

Prime Rate

Prime rate (prime lending rate) is a term used by banks instead of interest rate. The term, prime rate, originated when banks only lent money to favoured customers whom they were sure could return the money with interest on time.

Private Mortgage Insurance

Private mortgage income is insurance offered by a private insurance company that protects the bank from losses on defaulted mortgage. The limit is usually 20% to 25% of the loan amount. Private mortgage insurance is generally limited to loans that have a high loan to value ratio. It is the borrower who pays the premium.

Power of Attorney

Power of attorney is a written instrument that authorizes a person to act on another person’s behalf. The person who acts on another’s behalf is called an agent or an attorney.

Power of attorney can be for a definite period of time, a specific act or it may be general in nature. The terms of the power of attorney states when it expires and what powers are included. If the expiry date is not specified, the power of attorney expires when the person who grants it dies.

Points of Sales

When cash registers are replaced by computerized system, then it is called point of sales.

Principal

Principal is the basic amount or the starting amount that an investor invests to yield returns over a period of time at a specified rate of interest. It is also called principal amount or principal sum.

Payable-Through-Draft

This is a form of check that is written for a company other than a bank, but is payable through banks.

Payment Bond

Payment bond is a kind of insurance purchase by a builder that says that the insurance company will be responsible for payments due to labourers and other parties who provide service for building projects. It protects a bank and the owner from paying for mishaps.

Positioning

Positioning is an act where a holder of a financial instrument/s can be exposed to profits or losses from future changes in market prices. Positions are taken with the expectation of making profit from unexpected changes in the market in the future.

Banks usually take positions in their trading accounts or they hold or take balance sheet positions.

Premium

A premium is the amount that is greater than the actual price of a security. This is the amount that needs to be paid above the original amount for an issue to call or as a refund to an issue before it matures.

For banks, a premium is offered to attract funds from investors by a distressed bank who pays a higher interest rate or extra interest.

Qualified Opinion

A qualified opinion is an auditor’s opinion mentioned in his or her report that holds a few reservations regarding the process of audit. Because an auditor’s job is to verify financial documents for accuracy, it is called a qualified opinion, an opinion that needs to be considered.

Retail Banking

Retail banking is a kind of banking in which financial transactions are carried out directly with customers instead of other financial institutions and corporations.

Services and products offered by retail banking include savings accounts, personal loans, credit cards, debit cards, transactional accounts, mortgages and so on. Some retail banks also provide brokerage accounts, retirement planning, wealth management, retirement accounts, safe deposit boxes etc.

Residual Interest

Residual interest is interest that continues to accumulate on your credit card balance from the statement cycle date till the bank obtains your payment. The amount is posted on your next statement. For example, if your statement cycle was dated February 10^th and your bank received payment from you on February 20^th, there was a ten days gap for which the interest accrued. That interest is added to the next statement.

Repayment Mortgage

Repayment mortgage involves monthly repayments. The total amount being borrowed is paid off by the end of the mortgage term, which consists of interest on the loan in addition to the capital borrowed.

Rate Sensitive

When any changes are made to the related interest rates in a deposit account or a security investment that causes variations in its demand and supply, it is called rate sensitive.

Reserve Account

This account is maintained by depositing undistributed parts of profit to meet any future needs.

Refinance

The clearing off an earlier current loan with the money received from a new loan (using the same property as collateral) is known as refinance.

Revolving Line of Credit

It is a binding rule where a lender allows certain credit to the borrower.

Rate Risk

It is the rate of return decided to attract capital on an investment. It is usually advertised by investment companies to get as many customers to invest.

Release Price

Release price is the predetermined price of loan reduction. It is required by a bank before a developer can obtain a partial release of the bank’s lien which covers a portion of the collateral that is being sold.

Residual Value

Residual value is sometimes known as salvage value. It is a projected or estimated market or sales value of leased equipment at the end of a lease term.

Receivables

Receivable is the word used to describe money owned to a business that is yet to be received. It is usually used for amounts that are due form trade creditors who purchased goods and services on credit. 

Routing Number

A routing transit number (RTN) is a 9-digit number that can be found on the bottom left corner of a check. It identifies the bank where the account of a person is held.

Revolving Line of Credit

Different banks use this term differently. Some banks use it to refer to a credit facility that allows a borrower to draw and/or repay certain maximum amounts anytime they want. Some banks use the term to differentiate between regular lines of credit and revolving lines. This usage is outdated and problematic, and might lead a bank to legal liability.

Large banks user revolving line of credit to understand a combination of credit and a term loan. It can be for one year to three years. It is also called line of credit by banks.

Substitute Check

A substitute check, also called Image Replacement Document (IRD), is a digital reproduction of an original paper check that is used in the United States as a negotiable instrument.

A substitute check has the status of an original paper check. They are mostly used by financial institutions and payment processing centres for electronically transmitting data.

State-Dated Check

A stale-dated check is a check that is presented to the paying bank 6 months or more after the original date on the check. Banks do not accept stale-dated checks and can return them to the issuing bank unpaid.

The writer of the check can avoid the check going stale by writing ‘not good after -- days’ on the back of the cheque so that the recipient is aware of the date till s/he can cash it from the bank.

Smart Cards

Smart cards, unlike credit cards and debit cards that have magnetic stripes, have a computer chip that can be used for storing data, processing data and for identification.

Safekeeping

Arrangement provided by banks and other financial institutions to safely keep one’s assets such as valuables and documents is known as safekeeping. A fee is charged for safekeeping. The customer is issued a safekeeping receipt that says that the assets do not belong to the bank and need to be returned to the customer upon request.

SMS Banking

When banking is done through a mobile phone and specifically using SMS or messages, then it is called SMS banking. Through SMS banking, you can check your balance, request changes to your account or see details of the last five transactions. Banks also send an SMS informing their customers about the arrival of new money in their account or debiting of existing money when it is taken out from the bank account.

Security for Loans

When large loans are lent to institutions or individuals, the lender typically wants a guarantee that the loan will be paid back. This guarantee can be a large item of capital outlay such as a house that is fully or partly owned by the borrower. Usually, the amount of loan and the price of the item of guarantee needs to be equivalent.

Second Mortgage

Second mortgage is taken out on property that has already been pledged as a security to ensure payment of the first or an earlier mortgage. Unlike the first mortgage, the second mortgage has a shorter repayment term and has higher interest rates. It should be noted that the first mortgage gets the priority in settlement of claims before any other later mortgages.

Seller Carryback

It is a form of financing where the seller of a property finances a buyer who is finding it difficult to get a loan for buying the property or is in anyway falling short of the amount needed to buy the property. In other words, it is a part, usually not too large, that the seller offers to finance to the buyer. Seller carryback is also called carryback loan or seller’s second.

Secured Loan

A secured loan is a loan that is backed by a pledge of a real estate (known as collateral) by the borrower to get the loan. The loan is called secured because if the loan is not paid back on time by the borrower, the lender can take over the borrower’s property kept as security.

Unlike unsecured loans where a borrower merely promise that s/he will repay the loan, in secured loans the lender has full legal rights to claim and sell the collateral if the loan is not repaid.

Syndicated Loan

Syndicated loan is a huge loan given by a group of small banks to a single borrower. Mostly, corporate borrowers use this kind of loan. In most cases, there is a lead bank which gives a part of the loan and collectively other banks handle the balance amount.

Same Day Funds

Same day funds are so called because these funds or money balances are transferred or withdrawn on the same day of presenting and collection. Any transfer of money which can be used on the same day of transfer is subject to net settlement of accounts between banks.

The term is also used for transfer of federal funds from one bank to another.

Signature Card

Signature card is a contractual form that is executed by an account holder and establishes the account ownership and sets forth some basic terms of the account and provision of the deposit contract.

Spreads and Spreading

When bankers are restating the format of a borrower’s financial statements to a standardized format to assist analysis and comparisons, then this process of restating is known as spreading. The reformatted reports are known as spreads.

Standardized Approach

This is one of the three methods used for quantifying capital required for operational risks under Basel II. Banks that use the standardized approach need to hold capital for operational risk that is based upon the gross income for each line of business.

Standby Letter of Credit

It is a promise of a bank to pay the third party if the bank’s customer is unable to fulfil the obligation because of some reason. Standby letter of credit is frequently used as credit enhancements for securities issued by bank customers. This is an obligation that is issued for a third party on behalf of a bank’s customer. 

Spread

A spread is a difference between two prices or two rates. There are many usages of spread depending on the specific usage and different users.

The meaning of spread for traders is the difference between a bid and the asked price of a security. For underwriters, spread means the difference between the price realized by the issuer and the price paid by the investor. For bank analysts, spread means the difference between the average rate paid on a bank’s assets and the average rate paid on the bank’s liabilities.

Solvency Risk

Solvency risk is the risk of the inability to cover losses regarding the source, size and the type of losses. Because ready money is required to cover the losses, sometimes solvency is equated with liquidity.

Ultimately, every loss is needed to be covered with capital; therefore, solvency risk is the risk of a bank failure and its inability to pay.

Stop Payment

Stop payment is an order that is usually requested by an account holder where the account holder requests the bank to stop payment on a check that has been written. A fee is charged for stop payment by the bank.

Statement Savings Account

When a bank does not provide a customer with a passbook and instead of that the customer receives a month or a quarterly statement from the bank, it is called a statement savings account.

Strategic Risk

A strategic risk is the risk to capital or earning that originate from a bank’s wrong business decisions or because of an improper implementation of those decisions.

Sweep Account

Sweep account is a deposit account that periodically eliminates a portion of a customer’s funds into a high yielding instrument. Idle funds are swept into higher yielding, probably overnight investment. Some banks offer sweep account that removes only excess balances every week. Bank sweep accounts are sold as cash management tools.

Syndication

When two or more banks lend to the same borrower for the same loan agreement, it is known as syndication. Each bank in the syndicate is included in the loan agreement. They all may receive a notification from the borrower about the debt. Banks who allow syndication transaction sell some or all of their allotment in the credit facility.

Time Deposit

A time deposit (Term Deposit in Canada, Australia and New Zealand; Bond in the U.K.; Fixed Deposit in India) is the money deposited in a bank that cannot be withdrawn for the time specified beforehand. It is only when the term (the time period for which withdraws cannot be made) completes that the depositor can withdraw the money from a time deposit or hold it for another term.

A major benefit that a depositor gets to keeping money in a time deposit is higher interest rate. On the other hand, a bank gets to invest the money for a higher gain during the term. Even though the interest the depositor receives is higher than in other types of bank accounts, it is lower than investing in risky projects such as stocks or bonds.

Usually, a heavy penalty is extended towards the depositor if s/he chooses to withdraw money from time deposit.

Traveler’s Check

Traveler’s Check or Traveller’s Cheque is a pre-printed check that functions as cash, but is protected against loss or theft. Traveler’s check is so named because it is useful while travelling, especially when one travels overseas when not all credit or debit cards are acceptable. They are often used by people on vacation in place of cash.

A traveler’s check can be replaced if its owner has the receipt issued with the purchase of the cheques having the serial numbers.

A small charge or commission is taken when a person exchanges cash for traveler’s checks. Some issuers provide it for free in exchange of cash. Traveler’s checks do not expire, so a person can use it anytime s/he wants.

Transactional Account

Transactional account is deposit account at a bank or other financial institutions that allows secure and quick access to funds on demand. This type of account is not opened for the purpose of earning interest or saving, but for the convenience of the business client or oneself.

A customer can deposit or withdraw funds from the account anytime and any number of times. Transactional accounts do not bear interest.

Time Deposit

A time deposit is also known as term deposit. It is money deposit in a bank that cannot be withdrawn for a certain period of time. It is only when the term is over that the depositor can withdraw it or put it in a time deposit for another term. The longer the term of the deposit, the better is the yield on the money deposited. Usually, if the depositor takes out the money before the due date, there are significant penalties to be paid.

Trade Letter of Credit

It is a legal document that a customer asks from the bank to assure another person with whom s/he wants to trade that the defrayal for products would be transferred to the vendor.

Tiered Interest Rates

Variable interest rates can be applied to checking and/or savings accounts depending on the amount of funds in the account. Once a bank account reaches a certain level of funds, the interest rate is increased until funds fall below that particular level due to withdrawals.

Uncertified

In legal terms, uncertified is used to depict stocks, miscellaneous investments, bonds and deposit certificates that are held in immaterial form as electronic computer records.

Unadvised Line

This is the line of credit approved by a bank. It is not disclose to a borrower until a request is made from the borrower regarding the funding or some other specific time.

Underwriter

An underwriter is a commercial bank, a brokerage firm or an investment bank that works with an issuer to sell a new issue. Underwriters also form groups known as underwriting syndicates.

Underwriting

Underwriting is the work used for the process of analyzing and structuring a proposed loan. A secured lending is an important part of good underwriting. The term refers to the purchase of risk outside of banking.

Undivided Profits

Undivided profits mean retained earning in banking terms. These are profits of a bank that are not distributed to shareholder or transferred to surplus. These are corporate earnings that have collected over a period of time.

Variable Rates

As its name suggests, variable rate is an interest rate that fluctuates. They are used with loans to find out interest payments. They can also be used with deposit accounts to find out the interest earned. Variable rates are different from fixed rates, which are stable unlike variable rates.

Wire Transfer

A wire transfer or credit transfer is a method of transferring money from one institution to another electronically. There is no need for checks, cash or credit cards for wire transfer. The unique bank code of a local bank branch is shared between banks to transfer funds directly from one bank account to another.

Waiver

In banking terms, a waiver is the surrendering of rights to another authority. Sometimes, waiver is also used for exemption or settlement of a part of debt.

Wholesale Banking

When banks do business exclusively with government, corporations, trusts and other financial institutions, then it is known as wholesale banking.

Yield

A yield is the returns earned on a stock or a bond. It is the benefit that you get from any investment.

Zero Balance Account

When there is no minimum balance required to open and hold a bank account, it is called a zero balance account.

Zero Coupon Bond

It is the type of debt security that does not pay periodic interest. They are bought and sold at prices less than the value of the securities. The investor’s return is the difference between the amount paid to purchase the security and the amount returned at maturity.