| Bank capital | Bank assets minus bank liabilities. The net worth of the bank. The value of the bank to its owners.
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| Cash items in process of collection | Checks and transfers due to a bank that have not yet been collected; a bank asset.
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| Credit risk | The probability that a borrower will not repay a loan;
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| Depository institution | A financial institution that accepts deposits and makes loans.
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| Discount loans | A loan from the Federal Reserve to a commercial bank.
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| Excess Reserves | Reserves in excess of required reserves.
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| Federal funds market | The market where banks lend their excess reserves to other banks; the loans are unsecured.
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| Foreign exchange risk | The risk arising from holding assets denominated in one currency and liabilities denominated in another.
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| Interest-rate spread | 1. The difference between the interest rate a bank receives on its assets and the interest rate it pays to obtain liabilities. 2. Can also be used as a synonym for risk spread.
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| Interest-rate risk | 1. The risk that the interest rate will change, causing the price of a bond to change with it. 2. The risk that changes in interest rates will affect a financial intermediary's net worth. It arises from a mismatch in the maturity of assets and liabilities.
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| Large certificates of deposit | Certificates of deposit that exceed $100,000 in face value. They can be bought and sold in financial markets.
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| Letter of credit | A financial guarantee provided for a fee, usually by a bank, that insures a payment by one of its customers.
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| Liquidity risk | The risk that a financial institution's liability holders will suddenly seek to cash in their claims; for a bank this is the risk that depositors will unexpectedly withdraw deposit balances.
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| Loan commitment | A line of credit, similar to an individual's credit card limit, provided by a bank or other lender that gives a firm the ability to borrow whenever necessary.
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| Loan loss reserves | A portion of a bank's capital that is set aside to cover potential losses from defaulted loans.
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| Net interest income | A bank's interest income minus its interest expenses.
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| Net interest margin | A bank's interest income minus its interest expenses divided by total bank assets; net interest income as a percentage of total bank assets.
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| Nondepository institution | A financial intermediary that does not issue deposit liabilities.
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| Off-balance-sheet activities | Bank activities, such as trading in derivatives and issuing loan commitments, that are neither assets nor liabilities on the bank's balance sheet.
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| Operational risk | The risk a financial institution faces from computer hardware or software failure, natural disaster, terrorist attacks, and the like.
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| Repurchase agreement (repo) | A short-term collateralized loan in which a security is exchanged for cash, with the agreement that the parties will reverse the transaction on a specific future date, as soon as the next day.
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| Required reserves | Reserves that a bank must hold to meet the requirements set by regulators. In the United States, the requirements are established by the Federal Reserve.
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| Reserves | A bank's vault cash plus the balance in its account at the Federal Reserve.
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| Return on assets (ROA) | Bank net profits after taxes divided by total bank assets; a measure of bank profitability.
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| Return on equity (ROE) | Bank net profits after taxes divided by bank capital; a measure of the return to the bank's owners.
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| Secondary reserves | Short-term U.S. Treasury securities held as bank assets.
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| Sovereign risk | The risk that a foreign borrower will not repay a loan because its government prohibits it from doing so.
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| Trading or market risk | The risk that traders who work for a bank will create losses on the bank's own account.
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| Vault cash | Currency that is physically held inside a bank's vaults and automated teller machines (ATMs).
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