Banking and Financial Institutions

A set of vocabulary flashcards to help review key terms and concepts related to Banking and Financial Institutions.

Financial Institutions (FIs)

Entities that provide financial services such as banking, investing, and insurance.

Liquidity Risk

Risk that an institution will not be able to meet its short-term financial obligations due to an imbalance between liquid assets and liabilities.

Risk Premium

The return in excess of the risk-free rate of return that investors require to hold a risky asset.

Adverse Selection

A situation where sellers have information that buyers do not have, or vice versa, about some aspect of product quality.

Moral Hazard

The increased risk of loss that arises when a party is insulated from risk and therefore has a tendency to behave less carefully.

Securitization

The process of converting an asset or a pool of assets into a marketable security.

Interest Rate Risk

The potential for investment losses due to fluctuations in interest rates affecting the value of financial instruments.

Severity of Charge-Offs

The degree to which lenders are unable to recover loans that have been written off due to defaults.

Brokerage

Intermediation service provided by financial institutions that facilitates the buying and selling of assets.

Deposit Insurance

A guarantee that a bank's depositors will be paid back their deposits up to a certain limit in the event of a bank failure.

Debt Security

A financial instrument that represents a loan made by an investor to a borrower.

Investment Banks

Financial institutions that assist individuals, businesses, and governments in raising capital by underwriting or acting as the agent in the issuance of securities.

Asset Transformation

The process by which financial institutions convert risky assets into less risky (and potentially more liquid) financial instruments.

Riegle-Neal Act

A law passed in 1994 that allowed banks to operate across state lines and increased competition in the banking industry.

Capital Requirements

Regulatory standards that determine the minimum amount of capital that a bank must hold relative to its risk-weighted assets.

Consumer Protection Regulation

Laws and regulations designed to ensure fair treatment of consumers in financial transactions.

Federal Reserve System

The central banking system of the United States, which regulates the U.S. monetary and financial system.

Credit Allocation Regulation

Regulations influencing the distribution of credit to various sectors or regions, aiming to ensure equitable access to financial resources.

Liquidity Coverage Ratio (LCR)

A financial regulation that requires banks to hold a certain amount of liquid assets to cover short-term obligations.

Duration Gap

A measure of the difference between the duration of a bank's assets and the duration of its liabilities, indicating interest rate risk exposure.

Risk-Adjusted Return on Capital (RAROC)

A risk-based profitability measurement framework for analyzing risk-adjusted financial performance.

Fintech

The integration of technology into offerings by financial services companies to improve their use of financial services.

Bank Run

A situation in which a large number of customers withdraw their deposits simultaneously due to fears that the bank will become insolvent.

Securities Investor Protection Corporation (SIPC)

A non-profit corporation created to protect customers of brokerage firms that have failed.

Primary Securities (PS)

Initial financial securities issued directly from corporations to investors, such as stocks and bonds.

Secondary Securities (SS)

Financial instruments that are created from primary securities, such as derivatives.

Commercial Paper

An unsecured, short-term debt instrument issued by a corporation, typically used for the financing of accounts receivable and inventories.

Economic Interpretation of Duration

A measure of the sensitivity of the price of a fixed-income investment to changes in interest rates.