Chapter 13
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34 terms
Terms | Definitions |
|---|---|
 Balance Sheet | a statement showing an individual's or firm's financial position at a point in time. It lists assets, liabilities, and net worth |
| Bank assets | Cash items and funds used in securities investments, loans, and other asset holdings by the bank |
| Loans | a transaction in which the borrower receives funds from a lender and the borrower agrees to repay funds with interest. |
| Marketable securities | liquid assets that banks hold and can trade in secondary markets |
| Reserves | a bank asset consisting of vault cash (cash on hand in the bank) plus deposits with the Federal Reserve. |
| Vault cash | the cash on hand in the bank |
| Bank failure | a situation in which a bank cannot pay its depositors in full and still have enough reserves to meet its reserve requirements |
| Bank liabilities | funds acquired by the bank from savers |
| Borrowings | nondeposit liabilities of a bank, including short-term loans in the federal funds market, loans from the bank's affiliates, and discount loans. |
| Checkable deposits | accounts that grant a depositor the right to write checks to individuals, firms, or the government |
| Nontransaction deposits | claims on banks including savings deposits and time deposits |
| Bank net worth | the excess of the value of bank assets over the value of bank liabilities |
| Credit risk | the probability that a borrower will not pay in full promised interest, principal, or both. This characteristic of a credit market instrument influences its interest rate. |
| Collateral | assets that are pledged to pay for a loan in the event of default on the loan. |
| Compensating balance | a required minimum amount in a checking account that is used as a form of collateral in commercial loans |
| Credit rationing | the restricting of credit by lenders such that borrowers cannot obtain the funds they desire at the given interest rate |
| Credit-risk analysis | the examination of a borrower's likelihood of repayment and general business conditions that might influence the borrower's ability to repay the loan. |
| Excess reserves | reserves that depository institutions elect to hold that are greater than the reserves required by the Fed. |
| Federal deposit insurance | a federal government guarantee of certain types of bank deposits for account balances of up to $100,000. |
| Interest rate risk | the risk that the value of financial assets and liabilities will fluctuate in response to changes in market interest rates. |
| Duration | for an asset or liability, the responsiveness of the percentage change in the asset's or liability's market value to a percentage change in the market interest rate. |
| Duration gap | a bank's exposure to fluctuations in interest rates, measured as the difference between the average duration for bank assets and the average duration for bank liabilities |
| Floating-rate debt | loans whose interest payments vary with market interest rates |
| Interest rate swap | an agreement to sell the expected future returns on one financial instrument for the expected future returns on another. |
| Liquidity risk | the possibility that depositors may collectively decide to withdraw more funds than the bank has on hand |
| Off-balance-sheet lending | bank lending activities in which the bank does not necessarily hold as assets the loans that it makes, including standby letters of credit, loan commitments, and loan sales. |
| Loan commitment | an agreement by a bank to provide a borrower with a stated amount of funds during some specified period of time. |
| Loan sale | a financial contract in which a bank agrees to sell the expected future returns from an underlying bank loan to a third party. |
| Standby letter of credit | a promise that a bank will lend the borrower funds to pay off its maturing commercial paper if necessary |
| Prime rate | traditionally, the interest rate charged on six-month loans to high-quality borrowers. |
| Required reserves | the minimum amount that depository institutions are compelled to hold as reserves by the Federal Reserve System |
| Return on assets (ROA) | A measure of a bank's operating performance (net after-tax profit/bank assets). |
| Return on equity (ROE) | a measure of banks' shareholders' returns (net after-tax profit/bank equity capital). |
| T-account | a simplified accounting tool that lists changes in balance sheet items as they occur |
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