Liquidity risk refers to the potential risk that an investment cannot be liquidated during its life without significant costs or losses. This is particularly relevant in lending operations, where the ability to quickly convert an asset to cash is crucial.
The Loan-to-Value (LTV) ratio is a financial metric used by lenders to evaluate the risk involved in lending a borrower against the value of the asset being purchased.
Lombard Street is a key financial district located in the City of London, renowned for being the historical heart of the money market. It houses many commercial banks, bill brokers, and discount houses, with the Bank of England nearby.
Learn about the London Inter Bank Mean Rate (LIMEAN), its definition, examples, frequently asked questions, related terms, and additional resources.
The London Interbank Bid Rate (LIBID) is the interest rate at which banks bid for funds to borrow from one another in the London interbank market. It is considered the counterpart to the London Interbank Offered Rate (LIBOR).
The base interest rate defined in the loan agreement, to which the spread is added in order to establish the interest rate payable on a variable-rate loan.
Monetary reserve refers to a government’s stockpile of foreign currencies and precious metals used to support its currency. It is also the Federal Reserve Board's requirement for banks to keep a certain proportion of their deposits in cash or near-cash equivalents.
Money laundering is the illicit process of concealing the origins of money obtained from criminal activities, typically by means involving foreign banks or complex transactions, making it appear as though it were acquired legally.
A money order is a financial instrument that can be easily converted into cash by the payee named on the money order. It provides a secure way to transfer a specified amount of money.
The money supply measures the amount of money circulating in an economy, categorized into different components such as M1, M2, and M3, which include cash, checking deposits, savings deposits, and other financial instruments.
Moral hazard refers to the situation where an entity has the incentive to take on excessive risks because it does not fully bear the consequences of those risks. This is a common concern in sectors such as banking, insurance, and finance, particularly when entities are perceived as 'too big to fail' and expect potential government bailouts.
State-chartered banks owned by depositors and operated primarily for their benefit, with significant holdings in home mortgage loans.
A Negotiable Order of Withdrawal (NOW) is a type of bank or savings and loan withdrawal ticket that functions as a negotiable instrument, allowing for withdrawals from interest-bearing checking accounts.
A Negotiable Order of Withdrawal (NOW) account is a type of deposit account that allows the owner to write drafts against the deposited funds, permitting the account holder to earn interest while maintaining the ability to withdraw funds on demand.
A Non-Revolving Bank Facility is a type of loan issued by a bank to a company that allows for specific drawdowns over a defined period. Once funds are drawn, they function like a term loan.
A situation where an account does not have enough funds to cover a transaction, such as a presented check. This often results in the check being dishonored by the bank.
In various contexts such as accounting, banking, printing, and securities, the term 'offset' refers to actions or functions intended to counterbalance or neutralize other actions or amounts. It is used differently across diverse fields, reflecting its versatile nature.
Centres that provide advantageous deposit and lending rates to non-residents due to low taxation, liberal exchange controls, and low reserve requirements for banks. These centres often serve as tax havens, offering economic appeal while reducing customers' tax liabilities legally.
The term 'Open' varies in meaning across different fields such as Banking, Finance, Securities, and Computers. It generally signifies the initiation of an action or status that is currently active and not yet completed.
Ordinary interest is a type of simple interest calculated based on a 360-day year, as opposed to the 365-day year used in exact interest calculations.
Other Real Estate (ORE) and Other Real Estate Owned (OREO) refer to foreclosed properties held by lending institutions, not including properties used for bank operations.
An originator can refer to any entity involved in the initial transaction of a mortgage loan, the planning stages of a new securities offering, or the initiation of money transfer instructions.
An outstanding check is a check that has been written by a company or individual but has not yet been cleared by the bank.
The interest rate at which major banks lend to one another on the overnight market, typically utilized for short-term funding. Indexes of the average overnight rate, such as SONIA and EONIA, provide key reference rates in financial markets.
A participation loan is a financial arrangement where multiple lenders share in providing a loan, typically with one lender acting as the lead to service the loan. This can distribute the risk and allow for larger loan amounts than a single lender might handle.
A passbook is a book issued by a bank to record deposits, withdrawals, and interest earned in a savings account, typically known as a passbook savings account. It lists the depositor's name, account number, and all transactions.
A banking loan on which the interest is more than 90 days overdue. After this grace period has elapsed, the borrower becomes liable for late charges.
The term 'position' can refer to various contexts, from strategic market placement to financial conditions, and investments. In investments, it is a key concept involving either long or short stakes in securities or markets.
To insert a date on a document that is later than the date on which it is signed, making it effective only from the later date. A post-dated (or forward-dated) cheque cannot be negotiated before the date written on it, irrespective of when it was signed.
A specialized savings account operated via postal mail or automated teller machines (ATMs), offering higher interest rates due to its reduced operational costs.
A postdated check is a check written by the payer for a date in the future. It is not negotiable until the specified date becomes current.
The prime rate refers to the interest rate that commercial banks charge their most creditworthy customers, typically large corporations. It serves as a key benchmark in determining lending rates for consumers and businesses.
A raised check is a type of check on which the amount and possibly other information are raised above the smooth surface of the paper to prevent alteration and ensure security.
Rediscounting refers to the process where a bank or financial institution sells short-term negotiable debt instruments, such as bankers' acceptances and commercial paper, which have already been discounted. This service involves the exchange of these instruments for a cash amount that has been adjusted to reflect the prevailing interest rate.
The rediscount rate is the interest rate charged to commercial banks and other depository institutions when they borrow funds from the Federal Reserve through its discount window.
A bank nominated under the terms of a loan agreement to provide the marker rates for the purposes of fixing interest charges on a variable-rate loan.
A Reference Rate is an interest rate benchmark used as a basis for pricing financial products such as loans, mortgages, and derivatives. It is crucial for consistent pricing across financial markets.
A registered check is a type of check issued by a bank for a customer who sets aside funds in a special register. It is used when the customer specifies his name, the payee's name, and the amount to be transferred. Similar to a money order, a registered check is beneficial for individuals who do not have a checking account at the bank.
A remitting bank processes documents sent by the exporter under a collection arrangement and sends them to the collecting bank in the importer’s country.
Revolving Acceptance Facility by Tender (RAFT) is an underwritten facility provided by a bank to place sterling acceptance credits through a tender panel of eligible banks.
A revolving bank facility, also known as standby revolving credit, is a flexible loan agreement between a bank or a group of banks and a company, which allows the company to draw and repay funds multiple times during the loan's term.
Revolving credit is a financial arrangement where a lender provides funds up to a pre-approved credit limit, which the borrower can repeatedly use, repay, and use again. Common in both commercial and consumer banking, revolving credit helps businesses manage working capital and allows consumers flexible access to funds.
RAROC is a performance measurement tool used by financial institutions to determine the risk-adjusted profitability of various units within the organization.
A rubber check refers to a check that cannot be processed due to insufficient funds in the account it is drawn from. The term 'rubber' signifies the check's ability to bounce back, similar to a rubber ball, indicating its return to the issuer by the bank.
The Rule of 78s is a method for computing unearned interest used on installment loans with add-on interest. It distributes the interest charges in a way that results in higher interest expenses earlier in the loan term.
A comprehensive guide on the multifaceted usage and implications of the term 'run' across different domains such as banking and computers.
A bank or building-society account designed for the investment of personal savings. These accounts typically offer higher interest rates than deposit and current accounts. Some accounts provide instant access to funds, while others require notice to be given, typically 30, 60, or 90 days.
Savings and Loan Association (S&L) is a type of financial institution that specializes in accepting savings deposits and making mortgage loans.
An agreement between the parties involved to offset one debt against another or one loss against a gain. Commonly used in banking to balance credit and debit balances across different accounts.
A statement can refer to a summary of financial transactions, a document showing the status of assets and liabilities, or an instruction in a computer program.
A detailed report outlining the resources, liabilities, and capital accounts of a bank or financial institution as well as a summary of the status of assets, liabilities, and equity of a person or business organization.
A stop payment is the revocation of payment on a check after the check has been sent or delivered to the payee. So long as the check has not been cashed, the writer has up to six months to request a stop payment. The stop payment right does not apply to electronic funds transfers.
Substitution refers to the act of replacing one element with another in various contexts including banking, contract law, economics, law, and securities.
A Telegraphic Transfer, abbreviated as TT, is an electronic method of transferring funds utilized mainly in banking to move money quickly between bank accounts worldwide. This method became standard before today's more modern and efficient electronic transfer systems.
A tender panel involves a group of banks that come together to competitively offer loan terms to a company, ensuring the borrower gets the best conditions for financing.
A term certificate, more commonly known as a Certificate of Deposit (CD), is a widely used savings option with a fixed maturity date, often chosen for its reliable interest rates and diverse term lengths.
A term loan is a type of loan provided by a bank to a company with a set repayment schedule. The loan is usually drawn down immediately or shortly after the agreement is signed, based on the amortization schedule.
A third-party check is a negotiable instrument involving three parties: the bank (primary party), the drawer (secondary party), and the payee (third party), who often endorses the check to another recipient.
A Time Deposit is a savings account or a Certificate of Deposit (CD) held in a financial institution for a fixed term or with the understanding that the depositor can withdraw only by giving notice. It offers a specified term and usually carries penalties for early withdrawal.
A Transferable Loan Facility (TLF) allows a lender to transfer the rights of the loan to a third party without the need to inform the borrower, making it a flexible financial instrument.
In banking, truncation refers to the elimination of the service of returning canceled checks to customers. In computing, truncation involves dropping digits to the right of the decimal point of a number.
In banking, uncollected funds refer to the portion of a bank deposit made up of checks that have not yet been collected by the depository bank. This means that payment has not yet been acknowledged by the bank on which a check was drawn. Typically, a bank will not allow a depositor to draw on uncollected funds.
An unpaid cheque is a cheque that has been submitted for clearing but is returned to the payee due to the inability to process the transfer of value. This typically occurs due to insufficient funds in the payer's account or other issues.
Value Date marks the specific day when funds from a remittance become available to the payee, denoting the culmination of the banking clearing cycle.
A variable interest rate is the amount of compensation to a lender that is allowed to vary over the maturity of a loan. It is generally governed by an appropriate index.
Vault cash refers to the currency that a bank keeps on hand in its vault and ATMs to meet its day-to-day transaction needs.
A withdrawal refers to the act of removing or taking out money from a place where it is kept, such as a bank account or a mutual fund.
