Banking

Maturity Transformation

The process by which banks convert short-term, liquid deposits into long-term, illiquid loans and investments.

Customer Deposits

Funds provided by customers that banks use for lending and investments, allowing for maturity transformation.

Liquidity Risk

The risk that a bank may not have enough liquid assets to meet withdrawal demands.

Credit Risk

The risk that long-term borrowers might default on their loans, impacting the bank's financial stability.

Systemic Risk

The risk that a failure in one bank can trigger a broader financial crisis.

Economic Instability

A situation where excessive risk-taking can lead to asset bubbles and financial crashes.

Regulation

Rules and oversight to ensure consumer protection, system stability, and fair competition in financial institutions.

Fractional Reserve Banking

A banking system where banks keep a fraction of deposits as reserves and lend out the rest.

Asymmetric Information

A situation where one party has more or better information than another, leading to adverse selection and moral hazard.

Quantitative Easing (QE)

An unconventional monetary policy where central banks create new money to purchase financial assets to stimulate the economy.

Interest Rate Risk

The risk that changes in interest rates will affect a bank's profits, assets, and liabilities.

Open Market Operations (OMO)

Buying or selling government securities to influence the money supply.

Liquidity Coverage Ratio

A standard that ensures banks have enough liquidity to meet short-term obligations.

Basel III

An international regulatory framework that establishes minimum capital requirements for banks.

Capital Adequacy Ratio

A measure of a bank's available capital expressed as a percentage of its risk-weighted assets.

Common Equity Tier 1 (CET1)

The highest-quality capital that banks must maintain to absorb losses.

Adverse Selection

A problem where banks may end up lending to higher-risk borrowers due to lack of information.

Moral Hazard

A situation where borrowers take on more risks after receiving a loan since they do not bear the full consequences of failure.

Merchant Banks

Financial institutions that primarily offer advice on raising capital and are involved in investment banking.

Universal Banks

Banks that combine commercial and investment banking services under one roof.

Debt-to-Income Ratio

A measure that compares a borrower's monthly debt payments to their monthly gross income.

Central Bank

A financial institution that oversees a nation's monetary system and controls money supply and interest rates.

Negative Interest Rates

A monetary policy tool where central banks charge banks for holding excess reserves, encouraging them to lend more.

Monetary Policy

The actions of central banks to influence the money supply and interest rates to achieve economic objectives.

Risk-Weighted Assets

Assets adjusted for risk, used to determine a bank's capital requirements under the Basel framework.

Sustainable Development

Meeting current needs without compromising future generations' ability to meet theirs.

Environmental, Social, and Governance (ESG) Ratings

Metrics assessing a company's sustainability and ethical impact.

Decentralized Finance (DeFi)

Financial services that use blockchain technology to remove intermediaries in financial transactions.

Cooperative Banks

Member-owned banks focused on providing low-cost loans, often linked to specific trades or professions.

Giro Banks

Banks that facilitate money transfers and bill payments, typically associated with post services.

Credit Unions

Member-based organizations that pool savings to provide loans, emphasizing community bonds.

Robo-Advisors

Automated platforms providing financial advice based on algorithms and user inputs.

Mobile Banking

Banking services delivered through mobile devices, allowing users to manage their accounts anytime.

Buy Now, Pay Later (BNPL)

A payment option allowing consumers to purchase goods immediately and pay for them over time.

Financial Stability

A condition where the financial system operates smoothly without major disruptions.

Consumer Protection

Regulations safeguarding consumers against unethical practices in financial markets.

Systematic Regulation

Regulation that aims to prevent crises in the financial system as a whole.

Financial Services Action Plan

An EU initiative to harmonize financial regulations across member states.

Capital Market

A financial market where long-term debt and equity securities are bought and sold.

Fiduciary Duty

An obligation of one party to act in the best interest of another, particularly in finance.

Market Efficiency

A market condition where prices reflect all available information.

Sustainable Finance

Financial activities considering environmental and social impacts to meet long-term sustainability goals.

Inflation

The rate at which the general level of prices for goods and services rises.

Derivatives

Financial instruments whose value is derived from the value of other underlying assets.

Reserves

Funds that banks are required to hold as a safeguard against potential withdrawals.

Lender of Last Resort

A function of central banks to provide emergency funding to banks facing liquidity crises.