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The Financial Crisis: Glossary
Adjustable-rate mortgage (ARM)
A mortgage that permits the lender to periodically adjust the interest rate on the basis of changesin a specified index.
agency debt
Direct debt obligations issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks,which are government sponsored enterprises (GSEs).
Alt-A (Alternative A) mortgage
A non-standard mortgage owed by a borrower characterized by a strong credit history but with lesstraditional features; for example, reduced documentation, low down payment or non-owner occupier.
Asset-backed commercial paper (ABCP)
Short-term debt that is typically limited to a fixed maturity of between 1 and 270 days. Theproceeds of ABCP issuance are used primarily to purchase various assets, such as tradereceivables, consumer debt receivables, auto and equipment loan leases, and collateralized debtobligations. (See also: Commercial paper)
Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF)
A Federal Reserve lending facility that provides funding to U.S. depository institutions and bankholding companies to finance their purchases of high-quality asset-backed commercial paper (ABCP) from money market mutual funds under certain conditions.
Asset-backed security (ABS)
In general, a money or capital market instrument, usually marketable (that is, transferable tothird-parties in market transactions), that has specific financial assets generating the cash flowfrom which the instrument will be paid. (See also: Commercial mortgage-backed security andResidential mortgage-backed security.)
Bank holding company
A company that owns, or has controlling interest in, one or more banks. The Federal Reserve isresponsible for regulating and supervising bank holding companies, even if the bank owned by theholding company is under the primary supervision of a different federal agency.
Board of Governors of the Federal Reserve System
Central governmental agency of the Federal Reserve System located in Washington, D.C., andcomposed of seven members appointed by the president and confirmed by the Senate. The Board,with other components of the System, has responsibilities associated with the conduct of monetarypolicy, the supervision and regulation of certain banking organizations, the operation of much of thenation’s payments system, and the administration of many federal laws that protect consumers incredit transactions. The Board also supervises the Federal Reserve Banks. Also known as Board
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of Governors and Federal Reserve Board.
Capital (banking)
The funds invested in a bank that are available to absorb loan losses or other problems andtherefore protect depositors. Capital includes all equity and some types of debt. Bank regulatorshave developed two definitions of capital for supervisory purposes: Tier 1 capital can absorb losseswhile a bank continues operating. Tier 2 capital may be of limited life and may carry an interestobligation or other char-acteristics of a debt obligation; therefore it provides less protection todepositors than tier 1 capital. Capital ratio (banking system): Total assets minus total liabilities as apercentage of total assets
Capital Purchase Program
A program through which the U.S. Treasury Department purchases senior preferred shares ineligible financial institutions. The program is available to institutions that elected to participatebefore 5:00 pm (EDT) on November 14, 2008, including qualifying U.S. bank and savings and loanholding companies, U.S. controlled banks, savings associations, and certain bank and savings andloan holding companies engaged only in financial activities. Privately held financial institutions thathave filed a bank or thrift holding company application on or before December 8, 2008, may applyto the TARP program through their federal banking regulator.
Certificate of deposit (CD)
A time deposit in a financial institution with a specific maturity date. May also refer tolarge-denomination CDs ("Negotiable CDs") that can be sold but not redeemed before maturity.For accounting and regulatory purposes, these are bank deposits. Typical issue amounts of negotiable CDs are $1 million to $5 million.. The adjective “small” is applied to time deposits of less than $100,000, and “large” to time deposits of $100,000 or more.
Chapter 11 bankruptcy protection
The chapter of the Bankruptcy Code providing (generally) for reorganization, usually involving acorporation or partnership. A chapter 11 debtor usually proposes a plan of reorganization to keepits business alive and pay creditors over time. Business owners and individuals can also seek relief in chapter 11.
Clearing banks
Financial institutions that clear trades in government securities, agency securities, and other money market instruments for nonblank dealers.
Collateral
An asset that is pledged as security for a loan. The borrower risks losing the asset if the loan is notrepaid according to the terms of the loan agreement.
Collateralized obligations
CDO – Collateralized Debt Obligation: A security that represents a claim on cash flows generatedby a pool of debt obligations. CLO – Collateralized Loan Obligation: A security that represents aclaim on cash flows generated by a pool of loans. CMO – Collateralized Mortgage Obligation: Asecurity that represents a claim on cash flows generated by a pool of mortgages.
Commercial mortgage-backed security (CMBS)
A security that relies for payment on cash flows generated by a pool of commercial mortgage debtobligations. (See also: Asset-backed security and Residential mortgage-backed security)
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Commercial paper 
A short-term, unsecured promissory note issued by an industrial or commercial firm, a financialcompany, or a foreign government. Typically, maturity is 90 to 180 days. (See also: Asset-backedcommercial paper)
Commercial Paper Funding Facility (CPFF)
A Federal Reserve lending facility designed to provide a liquidity backstop to U.S. issuers of commercial paper. The CPFF is intended to improve liquidity in short-term funding markets andthereby contribute to greater availability of credit for businesses and households.
Conforming mortgage
A mortgage loan that qualifies for purchase by one of the housing-related Government SponsoredEnterprises (GSEs), Fannie Mae or Freddie Mac. The maximum size of a single-family conformingmortgage loan effective January 1, 2008 was $417,000. The Economic Stimulus Act of 2008temporarily raised the maximum to as much as $729,750 in some high-cost areas. Thisamendment expired December 31, 2008.
Conservatorship
A conservatorship is the legal process (for entities that are not eligible for Bankruptcy courtreorganization) in which a person or entity is appointed to establish control and oversight of acompany to put it in a sound and solvent condition. In a conservatorship, the powers of thecompany’s directors, officers, and shareholders are transferred to the designated conservator.
Credit default swap (CDS)
A type of derivative that allows a buyer to hedge against default of a counterparty. A CDS buyer agrees to pay a counterparty (the seller) a periodic premium in return for insurance against “creditevent” such as a default on a specified, underlying obligation.
Credit rating agency
Firms that rate the quality of bonds and other financial securities. These ratings are used byinvestors to assess the probability of default. Well-known rating agencies include Moody’s,Standard & Poors, and Fitch Ratings. Firms in this business must meet standards enforced by theSecurities and Exchange Commission.
Deposit insurance
Federal insurance of deposits received at an insured bank or thrift, including deposits in checking,negotiable order of withdrawal (NOW), and savings accounts; money market deposit accounts; andtime deposits such as certificates of deposit (CDs).
Excess reserves
Amount of funds held by a depository institution in its account at a Federal Reserve Bank inexcess of its required reserve balance and its contractual clearing balance.
Exchange Stabilization Fund (ESF)
A U.S. Treasury Department Fund that typically holds three types of assets: U.S. dollars, foreigncurrencies, and Special Drawing Rights (SDRs). The ESF can be used to purchase or sell foreigncurrencies, to hold U.S. foreign exchange and SDR assets, and to provide financing to foreigngovernments. All operations of the ESF require the explicit authorization of the Secretary of theTreasury.
Fannie Mae
 
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