Economic History Vocab

depression

a severe and long-lasting economic downturn that is worse and deeper than a recession; a severe reduction in gross domestic product (GDP)

recession

a period of declining real income and rising unemployment; a significant decline in general economic activity extending over a period of time

bank panic

occurs when a bank run begins at one bank and spreads to others, causing people to lose confidence in banks

bank run

occurs when many depositors rush to the bank to withdraw their money at the same time

bank suspensions

banks closed to the public because of financial difficulties

bank failure

occurs when banks are unable to meet depositors' demands for their money

central bank

an institution that oversees and regulates the banking system and quantity of money in the economy

Federal Reserve Bank

one of 12 regional Banks providing services to commercial banks, serving as fiscal agents for the U.S. government, and conducting economic research on its region and the nation

Federal Reserve Districts

twelve regions in the United States that are represented by a reserve bank

Board of Governors

a federal government agency that is the centralized component of the Federal Reserve System; guide the policy actions of the Federal Reserve System

Federal Open Market Committee (FOMC)

a committee created by law that consists of the seven members of the Board of Governors; the president of the Federal Reserve Bank of New York; and, on a rotating basis, the presidents of four other Reserve Banks

Federal Deposit Insurance Corp. (FDIC)

a U.S. government agency that insures deposits in banks and thrift institutions and supervises state-chartered, non-Federal Reserve member banks

fractional reserve banking system

a banking system in which the amount of reserves that banks hold is less than the value of their customers' deposits

bank reserves

the amount of deposits not loaned out by banks

discount window

Federal Reserve lending to depository institutions to support the liquidity and stability of the banking system and the effective implementation of monetary policy

discount rate

the interest rate charged by the Federal Reserve to banks for loans obtained through the Fed's discount window

federal funds rate

the interest rate depository institutions charge each other to borrow or lend reserves in the federal funds market; these funds are immediately available

government securities

bonds, notes, and other debt instruments sold by a government to finance its expenditures

open market operations

the buying and selling of government securities through primary dealers by the Federal Reserve; when the securities are bought or sold, reserves in the banking system are increased or decreased, respectively

Securities and Exchange Commission (SEC)

the SEC is an independent U.S. government agency established by Congress to police and regulate the securities industry

liquidity

the quality that makes an asset easily convertible into cash with relatively little loss of value in the conversion process

depository institution

a financial institution such as a savings bank, commercial bank, savings and loan association, or credit union that is legally allowed to accept monetary deposits from consumers

financial institution

a business that provides services to make deposits to or withdrawals from an account, take out a loan, invest, or exchange currency

liar loan

an industry term for a low- or no-documentation loan, typically Alt-A or subprime, where there is a suspicion the borrower, mortgage broker, or loan officer may have fraudulently overstated the income and/or assets to qualify for a larger loan

adjustable-rate mortgage

a mortgage that permits the lender to periodically adjust the interest rate on the basis of changes in a specified index

subprime mortgage loan

a lender-given designation for loans extended to borrowers with some sort of credit impairment, say, due to missing installment payments on debt or the lack of a credit history

mortgage-backed securities

debt obligations, such as bonds, that represent claims on the interest and principal payments of residential mortgage loans, most of these securities are issued by the government-sponsored enterprises Fannie Mae and Freddie Mac

Fannie Mae (Federal National Mortgage Association)

public-private enterprise established as a federal agency in 1938 and chartered by Congress as a private company in 1968; mission is to provide liquidity and stability to the U.S. housing and mortgage markets by bundling mortgage loans into tradable securities

Freddie Mac (Federal Home Loan Mortgage Corporation)

government-sponsored enterprise chartered by Congress in 1970; its mission is to provide liquidity, stability, and affordability to the U.S. housing market by purchasing mortgage loans from lenders

foreclosure

the legal process by which a property that is mortgaged as security for a loan may be sold and the proceeds of the sale applied to the mortgage debt