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Bond Markets and coupons to the issuer for payments of

interest when they come due.

Commercial Banks
(Chapter 6 and 11) Registered Bonds - bond in which the
owner is recorded by the issuer and the
coupon payments are mailed to the
Bond Markets - they are used to assist in registered owner.
the transfer of funds. Term Bonds - bonds in which the entire
Bonds - long-term debt obligations issue matures on a single date.
issued by corporations and government. Serial Bonds - bonds that mature on a
Capital Markets - markets that trade series of dates, with a portion of the
debt like bonds and mortgages and equity issued paid off on each.
instruments with maturities of more than Mortgage Bonds - bonds issued to
1 year. finance specific projects, which are
Treasury Notes - issued by the pledged as collateral for the bond issue.
government to finance national debt and Debenture Bonds - bonds backed solely
other government expenditures. by the general credit worthiness of the
STRIP - a treasury security in which the issuing firm, unsecured by specific assets
periodic interest payment is separated or collateral.
from the final principal payment. Subordinate Debenture Bonds - bonds
Accrued Interest - portion of the coupon that are unsecured and are junior in their
payment accrued between the last rights to mortgage bonds and regular
coupon payment and the settlement day. debentures.

Municipal Bonds - securities issued by Convertible Bonds - bonds that may be

the state and local government. exchanged for another security of the
issuing firm, at the direction of the
General Obligation Bonds - bonds bondholder.
backed by the full faith and credit of the
issuer. Stock Warrants - bonds issued with
stock warrants attached giving the
Revenue Bonds - bonds sold to finance a bondholder an opportunity to purchase
specific revenue-generating project, common stock.
backed by cash flows from the project.
Call Provision - provision on a bonds
Firm Commitment Underwriting - the issue that allows the issuer to force the
issue of securities by an investment bank; bondholder to sell the bond back.
guarantees the issuer a price for newly
issued securities by buying the whole Call Premium - difference between the
issue at affixed price. call price and the face value of the bond.

Bond Indenture - the legal contract that Sinking Fund Provision - requirement
specifies the rights and obligations of the that the issuer retire a certain amount of
bond issuer and the bondholders. the bonds issue each year.

Corporate Bonds - long-term bonds Junk Bonds - bonds rated as speculative

issued by corporations. or less than investment grade by
bond-rating agencies.
Bearer Bonds - bonds with coupon
attached and the holder presents the
Commercial Banks - represents the PDIC - a government instrumentality
largest group of depository institutions created by RA 3591 to insure the deposit
measured by asset size; accepts deposits of all banks.
and make loans.
Investment Securities - consist of items
such as interest-bearing deposit Commercial Banks’ Financial
purchased from other FIs. Statement and Analysis
( Chapter 12 )
Transaction Accounts - sum of
noninterest-bearing demand deposit and
interest-bearing checking accounts.
Report of Condition- Balance sheet of
NOW Account - an interest-bearing a commercial bank reporting information
checking account. at a single point in time.

Off-BS Activities - increasingly Report of Income - Income statement

important in terms of their dollar value of a commercial bank reporting revenues,
and the income they generate. expenses, net profit or loss, and cash
dividends over a period of time.
Off-BS Asset - this item moves to the
asset side when an event occurs. Retail Bank - A bank that focuses its
business activities on consumer banking
Off-BS Liability - this item moves onto
the liability side when an event occurs.
Corresponding Banking - provision of Wholesale Bank - A bank that focuses
banking services to other banks that do its business activities on commercial
not have the staff resources to perform the banking relationships.
services themselves. Correspondent Bank - A bank that
Retailing Banking - consumer oriented provides services to another commercial
banking, providing residential and bank.
consumer loans and accepting smaller Loans and leases - are the major asset
deposits. items on a bank’s balance sheet and
Interest Spread - difference between generate the largest flow of revenue
lending and deposit rates. income. However, these items are also the
least liquid asset items and the major
Net Interest Margin - interest income sources of credit and liquidity risk
minus interest expense divided by
earning assets. for most banks.

Noncurrent Loans - loans past due 90 Commercial and Industrial Loans -

days or more and loans not accruing are used to finance a firm’s capital needs,
interest. equipment purchases, and plant
Dual Banking System - coexistence of expansion.
both nationally and state-chartered
Real estate loans - are primarily
mortgage loans and some revolving home
Holding Company - parent company that equity loans
owns a controlling interest in a subsidiary
Consumer Loans - A third major
bank or other FI.
category of loans is the individual or
consumer loan— for example, personal maximum amount at given interest rate
and auto loans. terms.

Other loans - include a wide variety of Up-front Fee - The fee charged for
borrowers and types such as loans to making funds available through a loan
nonbank financial institutions, state and commitment.
local governments, foreign banks, and
sovereign governments. Commitment Fee - The fee charged on
the unused component of a loan
Net Write-offs - Actual loan losses less commitment.
loan recoveries.

Earning Assets - Investment securities

Commercial Letters of Credit -
plus net loans and leases.
Contingent guarantees sold by an FI to
NOW accounts (Negotiable order of underwrite the trade or commercial
performance of the buyers of the
withdrawal accounts) - are similar to guarantees.
demand deposits but pay interest when a
minimum balance is maintained. Standby Letters of Credit -
Guarantees issued to cover contingencies
MMDAs (Money market deposit that are potentially more severe and less
predictable than contingencies covered
Accounts) - with retail savings accounts
under trade related or commercial letters
and some limited checking account
of credit.

Other Savings Deposits - All savings Loans Sold - Loans originated by the
bank and then sold to other investors that
accounts other than MMDAs.
can be returned to the originating
Retail CDs - Time deposits with a face institution.
value below $100,000.
Recourse - The ability to put an asset or
Wholesale CDs - Time deposits with a loan back to the seller should the credit
face value of $100,000. quality of that asset deteriorate.

Negotiable Instrument - An Derivative Securities -

instrument whose ownership can be forward, swap, and option positions
transferred in the secondary market. taken by the FI for hedging or other
Brokered Deposits - Wholesale CDs
obtained through a brokerage house. Total Operating Income - The sum of
the interest income and non-interest
Core Deposits - Deposits of the bank income.
that are stable over short periods of time
and thus provide a long-term funding Time Series Analysis - Analysis of
financial statements over a period of
source to a bank. time.
Purchased Funds - Rate-sensitive Cross-Sectional Analysis - Analysis
funding sources of the bank. of financial statements comparing one
Loan Commitment -
Contractual firm with others.
commitment to loan to a firm a certain
Return on Equity (ROE)—measures Universal FI - An FI that can engage in a
overall profitability of the FI per dollar of broad range of financial service activities.
Commercial Banking - Banking
Return on Assets (ROA)—measures activity of deposit taking and lending.
profit generated relative to the FI’s assets.
Investment Banking - Banking activity
Equity Multiplier (EM)—measures of underwriting, issuing, and distributing
the extent to which assets of the FI are securities.
funded with equity relative to debt.
Nonbank Bank - A bank divested of its
Profit Margin (PM)—measures the commercial loans and/ or its demand
ability to pay expenses and generate net deposits.
income from interest and non-interest
Unit Bank - A bank with a single office.
Multibank Holding Company(MBHC)
Asset Utilization (AU)—measures the
amount of interest and non-interest - A parent banking organization that
income generated per dollar of total owns a number of individual bank
assets. subsidiaries.

Net Interest Margin - Interest income Grandfathered Subsidiaries -

minus interest expense divided by Subsidiaries established prior to the
earning assets. passage of a restrictive law and not
subject to that law.
Spread - The difference between
lending and borrowing rates. One-bank Holding Company - A
parent banking organization that owns
Overhead Efficiency - A bank’s one bank subsidiary and nonbank
ability to generate non-interest subsidiaries.
income to cover non-interest expense.
Disintermediation - The withdrawal
of deposits from depository institutions
and their reinvestment elsewhere.
Regulation of
Regulator Forbearance - A policy of
Commercial Banks not closing economically insolvent
(Chapter 13) depository institutions, but allowing
them to continue in operation.

capital-to-assets ratio - Ratio of an

Net Regulatory Burden -The
FI’s core capital to its assets.
difference between the private costs of
regulations and the private benefits for
the producers of financial services.

Outside Money - That part of the

money supply directly produced by the
government or central bank, such as
notes and coin.

Inside Money - That part of the money

supply produced by the private banking