Banking and Financial Institutions: Key Terms and Regulations

Commercial Bank (Definition)

A financial institution that takes deposits you can withdraw anytime and makes business loans.

Net Interest Income

The main way banks make money: the difference between interest earned on loans and interest paid on deposits.

Fee Income

Extra money banks make from account charges, cash management, and wealth management services.

Community Bank

A small local bank (under $10 billion in assets) offering personalized service to local customers.

Regional Bank

A mid-sized bank ($10B to $50B in assets) covering a wider area with more products.

Money Center Bank

A massive bank (over $50B in assets) operating nationally and globally from major financial cities.

SIFI Bank

A huge bank ($250B+ in assets) that is "too big to fail" because its collapse could crash the economy.

D-SIB

A bank named by national regulators as critical to the country's domestic economy, requiring yearly stress tests.

G-SIB

A global mega-bank whose failure would impact the world economy, required to hold extra safety capital.

FDIC Insurance Limit

Protects up to $250,000 per depositor, per ownership category, if a bank fails.

State-Chartered Bank

A bank licensed by a specific state, supervised by state regulators and either the Fed or FDIC.

Nationally Chartered Bank

A bank licensed by the federal government (OCC), which must have "N.A." in its legal name.

Unit Bank

A bank that operates out of just one single physical location.

Branch Bank

A bank with multiple physical locations operating under one license.

Bank Holding Company

A parent company formed to own and control one or more banks.

Financial Holding Company

An expanded parent company allowed to offer banking, investments, and insurance under one roof.

ALCO (Asset Liability Committee)

A bank management group that manages liquidity, interest rates, and financial risks.

Credit Committee

A bank management group that approves large loans and sets lending rules.

Audit Committee

A board of directors group that independently reviews accounting reports and exam results.

Demand Deposit Account (DDA)

A standard checking account that pays no interest and lets you withdraw money whenever you want.

NOW Account

A checking account that earns interest.

MMDA (Money Market Account)

An interest-paying account that allows limited check-writing with higher interest rates than standard savings.

Line of Credit (LOC)

A flexible, revolving loan used by businesses to cover short-term cash needs and inventory.

Term Loan

A long-term loan used by businesses to buy fixed assets like equipment or property.

Bridge Loan

A temporary, short-term loan used to cover expenses until permanent funding comes through.

Lockbox Services

A treasury service where client payments go straight to a bank P.O. Box to be processed quickly.

Remote Deposit Capture (RDC)

A service letting businesses scan and deposit checks electronically from their own office.

Positive Pay

An anti-fraud service where the bank verifies check details against a company's list before paying them.

Fiduciary Responsibility

The legal duty of a bank or trust officer to act strictly in the client's best financial interest.

Drawer / Payee / Drawee

Drawer = person writing the check; Payee = person receiving the money; Drawee = bank holding the money.

Cashier's Check

A check written directly by the bank itself, guaranteeing the funds.

FOMC (Federal Open Market Committee)

The 12-member Fed group that controls U.S. monetary policy and sets interest rates.

Expansionary Monetary Policy

Fed strategy to boost a weak economy by buying Treasuries, lowering interest rates, and encouraging lending.

Contractionary Monetary Policy

Fed strategy to cool down inflation by selling Treasuries, raising interest rates, and slowing down lending.

Fed Funds Rate

The interest rate commercial banks charge each other for overnight loans.

Discount Window

The Federal Reserve's emergency lending setup for banks when no other options are available.

M2 Money Supply

The total measure of cash, checking accounts, savings accounts, and money market funds in the economy.

National Banking Acts (1863-1864)

Laws that established the OCC and created national bank charters.

Federal Reserve Act (1913)

The law that created the Federal Reserve as the central bank of the U.S.

Glass-Steagall Act (1933)

Created the FDIC and separated risky investment banking from traditional commercial banking.

Truth in Lending Act (1968)

Law forcing lenders to clearly disclose full borrowing costs, interest rates, and loan terms to consumers.

Community Reinvestment Act (1977)

Law requiring banks to lend fairly across all local communities, banning discriminatory redlining.

Riegle-Neal Act (1994)

Law that allowed banks to open branches and buy other banks across state lines.

Gramm-Leach-Bliley Act (1999)

Repealed Glass-Steagall, allowing companies to combine banking, stock investments, and insurance.

USA PATRIOT Act (2001)

Anti-money-laundering law requiring banks to verify customer identities and report suspicious activity.

Sarbanes-Oxley Act (2002)

Post-Enron law requiring CEOs and CFOs to personally sign off on the accuracy of financial reports.

Check 21 Act (2004)

Law allowing banks to use digital images of checks instead of transporting physical paper checks.

Dodd-Frank Act (2010)

Post-2008 reform law that created the CFPB, regulated SIFI banks, and restricted risky bank trading.

CAMELS Rating

The 1-to-5 grading scale regulators use to measure a bank's financial health during annual exams