"Banking" Terms
Ability to pay refers to a borrower’s capacity to make good on his loan obligations. In banking, ability to pay is often called “financial capacity.”
An account balance is a statement of how much money is in an account.
Also called an account hold, an account freeze occurs when a bank or other financial institution prevents any transactions from hitting an account.
Also called an account freeze, an account hold occurs when a bank or other financial institution prevents any transactions from hitting an account.
Average balance is either the simple or the weighted average balance of a financial account during some period of time.
The average daily balance method is a way of calculating interest by considering the balance owed or invested at the end of each day of the period rather than the balance owed or invested at the end
A bank card association is a company owned by one or more financial institutions that licenses credit card programs.
Bank credit is an amount of funds that a person or business can borrow from a bank.
Bank debits are reductions in customer accounts.
In the finance world, a bank deposit is the placement of funds in an account with a bank.
A bank deposit agreement, also called a Bank Investment Contract (BIC), is an agreement between a bank and an investor where the bank provides a guaranteed rate of return in exchange for keeping a
A bank deposit is the placement of funds in an account with a bank.
A bank draft is a check that a bank guarantees.
A bank efficiency ratio is a measure of a bank's overhead as a percentage of its revenue.
A bank endorsement is an assurance that it will stand behind a check or other negotiable instrument that one of its customers creates.
A bank examination is a regular process of ensuring that a bank or lending institution is financially stable and obeying regulations while avoiding excessive risk. The CAMELS is a system used to rate
A bank failure occurs when a regulator closes an insolvent bank. An insolvent bank can't meet its obligations to depositors (e.g., it doesn't have the money to meet withdrawal demands) or to
Based in Basel, Switzerland, the Bank for International Settlements (BIS) acts as a bank for central banks around the world.
A bank guarantee is a promise from a bank or other lending institution that if a particular borrower defaults on a loan, the bank will cover the loss. Note that a bank guarantee is not the same as a
A bank holiday is a day on which a bank or banking system is closed.
A bank identification number (BIN) identifies and verifies parts of a bank transaction.
A bank investment contract (BIC), also sometimes called a Bank Deposit Agreement, is an agreement between a bank and an investor whereby the bank provides a guaranteed rate of return in exchange for
A bank reserve is a portion of a bank's deposits that are set aside in a liquid account to ensure that the bank has enough cash on hand to fulfill withdrawal requests.
Bankruptcy is a legal process under which a borrower protects and/or liquidates assets in order to repay debts.
When a check is refused by a bank and returned to the person who wrote it due to insufficient funds, it is called a bounced check.
A canceled check is a check that has cleared or prevented from clearing.
A capital dividend account is a special account that companies use to pay tax-free dividends to shareholders.
A cashier's check is a check that guarantees the availability of the underlying funds because it is drawn upon and issued by the bank itself.
A central bank is an institution responsible for determining the monetary policy of a nation or group of nations.
A certificate of deposit (CD) is a relatively low-risk debt instrument purchased directly through a commercial bank or savings and loan institution.
A certified check is a check for which the issuing bank guarantees payment.
Collateral is an asset pledged by a borrower to a lender, usually in return for a loan. The lender has the right to seize the collateral if the borrower defaults on the obligation.
A commercial bank is a financial institution that offers checking accounts, demand deposits, business and personal loans, savings vehicles and a variety of other related financial services.
Commercial paper is an unsecured and discounted promissory note issued to finance the short-term credit needs of large institutional buyers. Banks, corporations and foreign governments commonly use
A credit union is a financial institution that is owned and controlled by its members rather than shareholders. The members of the credit union pool their deposits and provide loans and other
Debtor in possession (DIP) refers to the status of a business that retains control of its assets and continues to operate while under the Chapter 11 bankruptcy reorganization process.
Debtor-in-possession (DIP) financing refers to financing for a business that retains control of its assets and continues to operate while under the Chapter 11 bankruptcy reorganization process
Euro Interbank Offered Rate (EURIBOR), is the rate at which European banks offer to lend unsecured funds to each other in the euro market.
Federal Reserve Bank refers to any of the 12 branches of the Federal Reserve System overseeing the implementation of U.S. monetary policy.
A fixed interest rate is a type of loan or mortgage for which the rate of interest does not fluctuate over the life of the loan.
A frozen account refers to a situation where an individual is unable to withdraw money from a bank account due to a court order.
Group banking is offered by some banks to incentivize a whole group of people, like employees of a company, to have a relationship with the banking institution.
A High Street Bank is a retail bank in the United Kingdom that has many locations.
In most usages, insolvency is the inability of a company or individual to meet its financial obligations as they come due. In the legal sense of the word, an entity is considered insolvent if its
Installment debt refers to any loan that is repaid by the borrower in periodic (usually monthly) installments that include principal and interest.
LIBOR is one of the most widely used benchmarks for short-term interest rates and is unlike the prime rate in the United States, which is somewhat arbitrarily based on certain banks' lending
The term interchange fees, also known as swipe fees, refers to the hidden cost paid by merchants to card-issuing banks and credit card companies for processing credit card and debit card transactions.
An international banking facility (IBF) is a segregated branch of a domestic bank or financial institution available to only foreign customers.
An investment bank is a financial intermediary that specializes primarily in selling securities and underwriting the issuance of new equity shares to raise capital funds. This is different from a
Investment banking is a category of financial services that specializes primarily in selling securities and underwriting the issuance of new equity shares to help companies raise capital. Investment
JIBAR is a market indicator and a benchmark for various interest rates in South Africa.
A letter of credit is a bank's written promise that it will make a customer's (the holder) payment to a vendor (called the beneficiary) if the customer does not.
A line of credit (LOC) is an arranged amount of standing credit that a bank's customer may draw upon at any time.
Liquidation refers to the selling of assets in return for cash.
The London Interbank Offered Rate (LIBOR) is the base lending rate banks charge each other in the London wholesale money market.
Long-term debt is debt due in one year or more. It is a key item that appears on a company's balance sheet.
A merchant bank is a financial institution that engages in underwriting and business loans, catering primarily to the needs of large enterprises and high net worth individuals. In the British market
Mobile banking refers to the use of a smartphone or other cellular device to perform online banking tasks while away from your home computer, such as monitoring account balances, transferring funds
Mobile phone banking is the use of a smartphone or other cellular device to accomplish tasks such as checking account balances, transferring funds between accounts, bill payment and finding an ATM
A mutual savings bank (MSB) is a type of financial institution that functions much like a bank, but with a different ownership structure. Instead of shareholders owning marketable shares, a mutual
A national bank is a bank that is a member of the Federal Reserve system and the Federal Deposit Insurance Corp. In global terms, a national bank is a country's central bank. In this context
The National Bank Surveillance System is a computer system that collects financial information about banks.
The National Credit Union Administration (NCUA) is an agency of the United States government that charters and oversees federal credit unions. It was created by Congress in 1970.
Off-premise banking refers to regular banking transactions that happen outside of a physical bank, typically at automated teller machines (ATMs).
An official settlement account is an account that records transactions of foreign exchange reserves, bank deposits and gold at a central bank.
Buying things on account is similar to saying, "put it on my tab." Eventually, however, you have to pay the tab. In our example, the transaction requires careful accounting. Once Company XYZ
Online banking enables bank customers to handle account management and perform account transactions directly with the bank through the internet. This is also known as internet banking.
The Organization for Economic Cooperation and Development (OECD) is an international economic forum that pursues cooperative approaches to common issues affecting individual members as well as the
The past-due balance method is a system for calculating interest charges based on loan or credit balances not paid prior to a specified due date.
Paycheck-to-paycheck means a lifestyle in which a person does not save money and would incur significant financial stress if he or she does not receive his or her next paycheck.
A PIN-debit transaction, also known as an online transaction, is a password-protected payment method that authorizes a transfer of funds over an electronic funds transfer (EFT)
Prepackaged bankruptcy refers to a plan for reorganization under Chapter 11 that a company drafts in cooperation with its lenders.
The prime rate is the interest rate commercial banks charge their most creditworthy customers, which are usually corporations.
A quick-rinse bankruptcy moves through the courts especially quickly.
A rain check is a written promise from a seller to a buyer. It guarantees that a buyer can purchase a product for a certain price at a later date, usually because the item is out of stock.
Ratings Service is provided by companies that evaluate the risks associated with debt securities.
A repurchase agreement is the sale of a security combined with an agreement to repurchase the same security at a higher price at a future date. It is also referred to as a "repo."
Retail banking refers to the consumer-oriented services offered by commercial banks. These services include checking and savings accounts, mortgages and various types of loans and investment services
A savings account is a low-risk, interest-bearing deposit with a bank or other financial institution.
The shadow banking system (or shadow financial system) is a network of financial institutions comprised of non-depository banks -- e.g., investment banks, structured investment vehicles (SIVs),
A signature-debit transaction, also known as an offline transaction, is a payment method that uses a debit card to transfer funds from a checking account to a merchant across a digital credit card
Smartphone banking is the use of a smartphone or other cellular device to perform tasks such as monitoring account balances, transferring funds between accounts, bill payment and locating an ATM
Sovereign debt refers to the amount of money a country owes to the holders of its government bond.
In the United States, sovereign debt is issued by the Department of Treasury and the bonds are
Structured finance is a complex financial instrument offered to borrowers with unique and sophisticated needs. Generally, a simple loan will not suffice for the borrower so these more complex and
Subordinated debt is any outstanding loan that, should the borrowing company fail, it will be repaid only after all other debt and loans have been settled. It is the opposite of unsubordinated
A traveler's check is a certified note issued by a bank that may be used by travelers as a risk-free substitute for paper currency.
A person is underbanked when he or she does not participate in the banking system very much and instead relies on the use of cash rather than checks or credit cards. In the securities world,
Universal banking refers to the practice of offering clients retail banking as well as investment services.
Unsubordinated debt refers to loans and debt securities (e.g., bonds, CDs, collateralized securities, etc.) for which the repayment priority outranks other debts owed by the same individual entity (
The World Bank is an international financial institution dedicated to reducing poverty around the world through capital investment and the facilitation of trade.
A zero-balance account (or "ZBA") is a business-oriented bank account that usually has a balance of $0.
A zombie bank is a bank with liabilities that exceed its assets (in other words, it has a net worth of zero). They do not die (hence the nickname) because they receive government support or bailouts