Bond Markets and finance specific projects, which are
Commercial Banks pledged as collateral for the bond issue.
(Chapter 6 and 11) Debenture Bonds - bonds backed solely by the general credit worthiness of the Bond Markets - they are used to assist in issuing firm, unsecured by specific assets the transfer of funds. or collateral. Bonds - long-term debt obligations Subordinate Debenture Bonds - bonds issued by corporations and government. that are unsecured and are junior in their Capital Markets - markets that trade rights to mortgage bonds and regular debt like bonds and mortgages and equity debentures. instruments with maturities of more than Convertible Bonds - bonds that may be 1 year. exchanged for another security of the Treasury Notes - issued by the issuing firm, at the direction of the government to finance national debt and bondholder. other government expenditures. Stock Warrants - bonds issued with STRIP - a treasury security in which the stock warrants attached giving the periodic interest payment is separated bondholder an opportunity to purchase from the final principal payment. common stock. Accrued Interest - portion of the coupon Call Provision - provision on a bonds payment accrued between the last issue that allows the issuer to force the coupon payment and the settlement day. bondholder to sell the bond back. Municipal Bonds - securities issued by Call Premium - difference between the the state and local government. call price and the face value of the bond. General Obligation Bonds - bonds Sinking Fund Provision - requirement backed by the full faith and credit of the that the issuer retire a certain amount of issuer. the bonds issue each year. Revenue Bonds - bonds sold to finance a Junk Bonds - bonds rated as speculative specific revenue-generating project, or less than investment grade by bond- backed by cash flows from the project. rating agencies. Firm Commitment Underwriting - the Commercial Banks - represents the issue of securities by an investment bank; largest group of depository institutions guarantees the issuer a price for newly measured by asset size; accepts deposits issued securities by buying the whole and make loans. issue at affixed price. Investment Securities - consist of items Bond Indenture - the legal contract that such as interest-bearing deposit specifies the rights and obligations of the purchased from other FIs. bond issuer and the bondholders. Transaction Accounts - sum of Corporate Bonds - long-term bonds noninterest-bearing demand deposit and issued by corporations. interest-bearing checking accounts. Bearer Bonds - bonds with coupon NOW Account - an interest-bearing attached and the holder presents the checking account. coupons to the issuer for payments of Off-BS Activities - increasingly interest when they come due. important in terms of their dollar value Registered Bonds - bond in which the and the income they generate. owner is recorded by the issuer and the Off-BS Asset - this item moves to the coupon payments are mailed to the asset side when an event occurs. registered owner. Off-BS Liability - this item moves onto Term Bonds - bonds in which the entire the liability side when an event occurs. issue matures on a single date. Corresponding Banking - provision of Serial Bonds - bonds that mature on a banking services to other banks that do series of dates, with a portion of the not have the staff resources to perform the issued paid off on each. services themselves. Mortgage Bonds - bonds issued to Retailing Banking - consumer oriented banking, providing residential and consumer loans and accepting smaller equity loans deposits. Consumer Loans - A third major Interest Spread - difference between category of loans is the individual or lending and deposit rates. consumer loan— for example, personal Net Interest Margin - interest income and auto loans. minus interest expense divided by Other loans - include a wide variety of earning assets. borrowers and types such as loans to Noncurrent Loans - loans past due 90 nonbank financial institutions, state and days or more and loans not accruing local governments, foreign banks, and interest. sovereign governments. Dual Banking System - coexistence of Net Write-offs - Actual loan losses less both nationally and state-chartered loan recoveries. banks. Earning Assets - Investment securities Holding Company - parent company that plus net loans and leases. owns a controlling interest in a subsidiary NOW accounts (Negotiable order of bank or other FI. withdrawal accounts) - are similar to PDIC - a government instrumentality demand deposits but pay interest when a created by RA 3591 to insure the deposit minimum balance is maintained. of all banks. MMDAs (Money market deposit Commercial Banks’ Financial Accounts) - with retail savings accounts and some limited checking account Statement and Analysis features. ( Chapter 12 ) Other Savings Deposits - All savings accounts other than MMDAs. Report of Condition- Balance sheet of Retail CDs - Time deposits with a face a commercial bank reporting information value below $100,000. at a single point in time. Wholesale CDs - Time deposits with a Report of Income - Income statement face value of $100,000. of a commercial bank reporting revenues, expenses, net profit or loss, and cash Negotiable Instrument - An dividends over a period of time. instrument whose ownership can be transferred in the secondary market. Retail Bank - A bank that focuses its business activities on consumer banking Brokered Deposits - Wholesale CDs relationships. obtained through a brokerage house. Wholesale Bank - A bank that focuses Core Deposits - Deposits of the bank its business activities on commercial that are stable over short periods of time banking relationships. and thus provide a long-term funding source to a bank. Correspondent Bank - A bank that provides services to another commercial Purchased Funds - Rate-sensitive bank. funding sources of the bank. Loans and leases - are the major asset Loan Commitment - Contractual items on a bank’s balance sheet and commitment to loan to a firm a certain generate the largest flow of revenue maximum amount at given interest rate income. However, these items are also the terms. least liquid asset items and the major Up-front Fee - The fee charged for sources of credit and liquidity risk making funds available through a loan for most banks. commitment. Commercial and Industrial Loans - Commitment Fee - The fee charged on are used to finance a firm’s capital needs, the unused component of a loan equipment purchases, and plant commitment. expansion. Real estate loans - are primarily Commercial Letters of Credit - mortgage loans and some revolving home Contingent guarantees sold by an FI to underwrite the trade or commercial income to cover non-interest expense. performance of the buyers of the guarantees. Regulation of Standby Letters of Credit - Commercial Banks Guarantees issued to cover contingencies (Chapter 13) that are potentially more severe and less predictable than contingencies covered Net Regulatory Burden - The under trade related or commercial letters difference between the private costs of of credit. regulations and the private benefits for Loans Sold - Loans originated by the the producers of financial services. bank and then sold to other investors that Outside Money - That part of the can be returned to the originating money supply directly produced by the institution. government or central bank, such as Recourse - The ability to put an asset or notes and coin. loan back to the seller should the credit Inside Money - That part of the money quality of that asset deteriorate. supply produced by the private banking Derivative Securities - Futures, system. forward, swap, and option positions Universal FI - An FI that can engage in a taken by the FI for hedging or other broad range of financial service activities. purposes. Total Operating Income - The sum of Commercial Banking - Banking activity of deposit taking and lending. the interest income and non-interest income. Investment Banking - Banking activity of underwriting, issuing, and distributing Time Series Analysis - Analysis of securities. financial statements over a period of time. Nonbank Bank - A bank divested of its commercial loans and/ or its demand Cross-Sectional Analysis - Analysis of deposits. financial statements comparing one firm Unit Bank - A bank with a single office. with others. Return on Equity (ROE)—measures Multibank Holding overall profitability of the FI per dollar of Company(MBHC) - A parent banking equity. organization that owns a number of individual bank subsidiaries. Return on Assets (ROA)—measures profit generated relative to the FI’s assets. Grandfathered Subsidiaries - Subsidiaries established prior to the Equity Multiplier (EM)—measures passage of a restrictive law and not the extent to which assets of the FI are subject to that law. funded with equity relative to debt. Profit Margin (PM)—measures the One-bank Holding Company - A parent banking organization that owns ability to pay expenses and generate net one bank subsidiary and nonbank income from interest and non-interest subsidiaries. income. Asset Utilization (AU)—measures the Disintermediation - The withdrawal of deposits from depository institutions amount of interest and non-interest and their reinvestment elsewhere. income generated per dollar of total assets. Regulator Forbearance - A policy of not closing economically insolvent Net Interest Margin - Interest income depository institutions, but allowing minus interest expense divided by them to continue in operation. earning assets. Spread - The difference between capital-to-assets ratio - Ratio of an FI’s core capital to its assets. lending and borrowing rates. Overhead Efficiency - A bank’s ability to generate non-interest
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