Ch6: What is a Bank?

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Terms in this set (...)

money-changer banks
banks that began as money changers (warehouse banks, eventually grew into fractional reserve)
overdraft
line of credit that allows a depositor to borrow automatically to cover uncovered payments
usury
charging of (excessive) interest on a loan (banned by church in early development of first banks)
remittance
service of making payment at a distance (previously between hands of merchants, later banks)
merchant banks
banks that began as merchants
banks of deposit
government sponsored warehouse banks
suspension of convertibility
a refusal to allow cash withdrawals, while continuing to process check payments (helped delay/ prevent issues with overdrawing)
universal bank
a form of bank free to engage in any form of financial activity
banknote
promissory note issued by a bank and payable to bearer on demand
chartered bank
a bank established through the granting of a public charter (individuals acting on behalf of govt charter)
free banking
granting of bank charter to any qualified applicant, without individual legislation
private bank
an american merchant bank, historically needed charter to issue banknotes but could do everything else
near bank
financial institution with similar intermediation function to bank, but usually without the payment function
finance company
institution set up to provide credit to households or firms, usually to finance the purchase of appliances or equipment
pawnshop
a financial institution that makes small loans to consumers against a pledge (pledges anything from jewelry to firearms)
post office savings bank
a government owned savings intermediary operated out of post office branches
retail banking
provision of banking services (payments and lending) to households
negotiated order of withdrawal (NOW) account
a time deposit on which checks may be written
discounting
making of a loan through the purchase of an IOU at the present value of its face value
commercial bills doctorine
an 18th century doctrine of banking that held that bank should lend only by discounting commercial bills (short term commercial bills based on bonafide commercial transactions)
commercial paper
unsecured short term commercial security
regulatory costs
costs that a bank incurs in complying with regulations
syndication
a bank loan that is broken up among a number of banks with each lending independly
participation
a number of banks lending to a single borrower through a lead bank
credit scoring
scoring a potential borrower based on characteristics to assess probability of default
mortgage lending
lending against real estate collateral
securitization
the sale of loans to a pool that issues tradable securities to finance the purchase
interbank deposits
deposit of one bank at another
call loan
loan repayable on demand of the lender
Fed funds market
market for loans of deposits at the Fed
Eurodollar interbank market
market for loans between Eurodollar banks
Fed funds rate
rate at which banks lend to one another on the Fed funds market
London interbank offered rate (LIBOR)
rate at which banks lend to one another on the Eurodollar interbank market
bank repo
bank liability secured by government securities
overnight Eurodollars
an overnight interbank loan involving a Eurodollar bank
correspondent Fed funds
a loan to a correspondent bank that is formally a loan of Fed funds
negotiable certificate of deposit (NCD)
a negotiable bank CD
certificate of deposit (CD)
time deposit with a fixed maturity, but can be withdrawn before maturity with a penalty so relatively illiquid
deposit note
a long-term, insured, bank liability
wholesale time deposits
bank time deposits issued in original amounts of $100,000 or more and sold on the money market
brokered retail deposits
bank CDs marketed through securities brokers, typically have maturity of several years
roll over
to pay off existing debt by issuing new debt
line of credit
bank commitment to lend to a customer up to a pre-specified limit
standby letter of credit
bank guarantee used to back some types of security issued in the money market
banker's acceptance
draft on which a bank has guaranteed payment
variation on commercial paper, basically a guaranteed postdated check
off-balance-sheet banking
banking activities that do not directly involve changes in bank assets or liabilities
bypasses regulation, provides leverage and doesn't change equity to loan ratio
loan commitment
a bank's commitment to lend to a customer in the future at a pre-arranged rate, combination of forward transactions in interest rates with lending
nonbank bank
a financial institution that is like a bank except that it either does not accept checking deposits or it does not make commercial loans
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