account by jizhen1947

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                         Banking Terminology

A

account

Definition 1
A record of financial transactions for an asset or individual, such as at
a bank, brokerage, credit card company, or retail store.

Definition 2
More generally, an arrangement between a buyer and a seller in
which payments are to be made in the future.

account aggregation

Definition
An online service provided to individuals, allowing them to
consolidate a range of accounts, bills, credit cards, and
other financial information into one interface, in order to simplify the
managing of personal finances.

account reconciliation

Definition
The act of confirming that the balance in one's
checkbook matches the corresponding bank statement.

account statement

Definition
A record of transactions and their effect on account balances over a
specified period of time, for a given account. A bank
account statement lists the debits and credits that took place over
the relevant time period, while a brokerage account statement lists
the long positions and short positions, purchases and sales, and
other transactions.

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ATM

Definition
Acronym for automated teller machine, a machine at a
bank branch or other location which enables a customer to perform
basic banking activities (checking one's balance, withdrawing or
transferring funds) even when the bank is closed.

B

balance

Definition 1
The amount of money in an account, equal to the net of
credits and debits at that point in time for that account. also
called account balance.

bank

Definition
An organization, usually a corporation, chartered by a state
or federal government, which does most or all of the following:
receives demand deposits and time
deposits, honors instruments drawn on them, and pays interest on
them; discounts notes, makes loans, and invests in securities;
collects checks, drafts, and notes; certifies depositor's checks;
and issues drafts and cashier's checks.
bank account

Definition
An account held by an investor at a financial institution.
The financial institution holds the money for the investor, leading to a
positive or credit balance, or loans money to the investor, leading to
a negative or debit balance. Unlike a brokerage account, which allows
an investor to buy and sell securities, a bank account is used for


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savings. Types of bank accounts include savings
accounts and checking accounts.

bank draft

Definition
A check drawn by one bank against funds deposited into
its account at another bank, authorizing the second bank to
make payment to the individual named in the draft.

bank guarantee

Definition
A type of guarantee in which a bank or other lending
organization promises to repay the liabilities of a debt or in
the event that the debtor is unable to.

bank identifier codes

Definition
BIC. Series of codes developed by the International Organization for
Standardization (ISO) to identify banks and their branches. These
codes are generally only used by financial institutions,
to conduct business between banks, such as wire transfers. A
BIC code can be either 8 or 11 digits long; 8 digits would refer to
a primary office of a bank, while an 11 digit code would refer to a
specific branch location. The code specifies the bank, country,
specific location (such as city), and branch. See bank identification
number (BIN). also called SWIFT codes, SWIFT ID, ISO 9362.

Bank Note

Definition
A non-interest-bearing promissory note of a Federal Reserve
Bank which is payable to the bearer on demand and can be used
as cash.


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banking

Definition
In general terms, the business activity of accepting and
safeguarding money owned by other individuals and entities, and
then lending out this money in order to earn a profit.

Barclays

Definition
International financial institution, which provides a number
of financial services for consumers and businesses at the global level.
The company has been in business for over 300 years and is
considered one of the largest banks in the United Kingdom. In 2008,
the company acquired a portion of troubled Lehman Brothers for
$1.35 billion. The company's corporate headquarters is based in
London, England.

blank check

Definition 1
A check that is signed by the payer but with no specific
amount indicated, leaving this determination up to the drawee.

Definition 2
More generally, a term used for any situation in which an
usually high level of trust is afforded by one party to another.


bounced check

Definition
A check which a bank returns because it is not payable due to
insufficient funds. also called rubber check.

C


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cashier's check

Definition
A check which cannot bounce because its face amount is paid to
the bank when it is issued, and the bank then
assumes the obligation.

CD

Definition
Certificate of Deposit. Short- or medium-term, interest-bearing, FDIC-
insured debt instrument offered by banks and savings and loans.
CDs offer higher rates of return than most comparable investments,
in exchange for tying up invested money for the duration of the
certificate's maturity. Money removed before maturity is subject
to a penalty. CDs are low risk, low return investments, and are also
known as "time deposits", because the account holder has agreed to
keep the money in the account for a specified amount of time,
anywhere from three months to six years.

Central Bank

Definition
The generic name given to a country's primary monetary authority,
such as the Federal Reserve System in the U.S. Usually
has responsibility for issuing currency, administering monetary policy,
holding member banks 'deposits, and facilitating the
nation's banking industry.




Central Liquidity Facility (CLF)

Definition
A government-owned corporation whose purpose is to
accommodate credit unions by providing funds during
unexpectedly illiquid times. This institution was established in 1979

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and provides short or long-term funds to credit unions based upon
their individual needs. Membership is voluntary.

certified check

Definition
A check for which the bank guarantees payment.

check

Definition
A negotiable instrument drawn against deposited funds, to pay a
specified amount of money to a specific person upon demand.
Examples include bills of exchange and drafts.

checkbook

Definition
A booklet of blank checks which enable a bank accountholder to
draw money from his/her checking account deposits.




Citibank

Definition
International banking institution credited with being one of the
largest banks in the world. Citibank operates as a
financial subsidiary of Citigroup and was founded in 1812. Citibank

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provides a number of standard banking services and also operates
the credit card division of Citigroup. The Citibank division of Citigroup
was hit hard by the global financial crisis of 2008 and as a result the
company required assistance under the Federal Troubled
Asset Relief Program (TARP).

clear

Definition
The process by which a check or a bank draft is authorized and
confirmed for the transfer of funds from one account to another.

clearing

Definition 1
The collection of funds which a check is drawn on, and
the payment of those funds to the bearer.

Definition 2
The verification of information between the two brokers in
a securities transaction and the subsequent
settlement (delivery of certificates in exchange for payment).




clearing bank

Definition
A commercial bank that is part of a network of banks that can clear
checks for its clients regardless of whether or not
the check originates from the same commercial bank. Clearing a


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check means processing it so that funds are deducted from
the payer's account and put into the payee's account.

Clearstream

Definition
An electronic clearinghouse that allows financial
institutions to settle securities transactions. Along with Euroclear, it is
the principal clearinghouse for Euro market transactions.

commercial bank

Definition
An institution which accepts deposits, makes business loans, and
offers related services. Commercial banks also allow for a variety
of deposit accounts, such as checking, savings, and time deposit.
These institutions are run to make a profit and owned by a group of
individuals, yet some may be members of the Federal Reserve
System. While commercial banks offer services to individuals, they
are primarily concerned with receiving deposits and lending to
businesses.




commission

Definition
A fee charged by a broker or agent for his/her service in facilitating
a transaction, such as the buying or selling of securities or real
estate. In the case of securities trading, brokers can be split into two

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broad categories depending on the commissions
they charge. Discount brokers charge relatively low commissions, but
provide no services beyond executing trades. Full service
brokers charge higher commissions, but provide
research and investment advisory services.

compound interest

Definition
Interest which is calculated not only on the initial principal but also
the accumulated interest of prior periods. Compound interest differs
from simple interest in that simple interest is calculated solely as a
percentage of the principal sum. The equation for compound interest
is: P = C(1+ r/n)nt Where: P = future value C = initial deposit
r = interest rate(expressed as a fraction: eg. 0.06 for 6%) n = # of
times per year interest is compounded t = number of years
invested

confidence letter

Definition
A statement issued by an investment bank to investors indicating
the bank's level of confidence that the takeover financing of one
its clients will be met.




core deposits

Definition
Banking deposits made by customers in the bank's
general market area. A bank considers its core deposits to be a

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reliable source of funding, since customers in its general market area
tend to be loyal and consistent. For example, a business owner who
deposits checks at a local bank is less likely to alter his or her
depositing habits based on general economic changes, such as
interest rate fluctuations. also called primary deposits.

correspondent

Definition
A bank, brokerage or other financial institution that
performs services for other banks, brokerages or other financial
institutions, where the latter does not have direct access.

credit card

Definition
Any card that may be used repeatedly to borrow money
or buy products and services on credit. Issued by banks, savings and
loans, retail stores, and other businesses.




currency in circulation

Definition
The total amount of paper currency, coins, and demand deposits that
is held by consumers and businesses rather than by financial
institutions, central banks, and the U.S. Treasury. Currency

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in circulation is thus the sum of currency held by the public, and is
a component of a bank's reserves. It is an important factor that the
Federal Open Market Committee takes into account when setting
the money supply, since a decline in the currency in circulation
means that banks don't have as many demand deposits in their
reserve. This can mean that fewer loans could be extended
to borrowers because the bank will have to make up for a decline in
reserves.

current income

Definition
Money that is regularly received from investments, such
as dividends and interest.

custodial account

Definition
An account which is created for the benefit of a minor, usually at
a bank, mutual fund, or brokerage, with anadult as the custodian.

D

day of deposit to day of withdrawal account

Definition
Type of bank account where interest is only accrued
andpaid for days that funds are in the account.



debit card

Definition
A card which allows customers to access their fundsimmediately,
electronically. Unlike a credit card, a debitcard does not have
any float.

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demand deposit

Definition
An account balance which can be drawn upon on demand, i.e.
without prior notice.

deposit

Definition 1
Money given in advance to show intention to complete
the purchase of a property.

Definition 2
Money transferred into a customer's account at afinancial institution.

deposit in transit

Definition
A deposit that has been made but has not yet been posted by
the bank and therefore is not yet reflected in the account balance.

deposit slip

Definition
A written notification accompanying a bank depositwhich specifices
and categorizes the funds (such aschecks, bills and coins) being
deposited.




deposit transfer

Definition 1
The process of transferring deposits from a failedsavings
institution to a healthy one. Usually, this will involve a fee.

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Definition 2
The process by which a landlord transfers a tenant's deposit to
another party. This can occur when onetenant subleases to another.
Assuming the terms of thecontract are not breached, the new party
will be therecipient of the deposit at the end of the contract period.

digital money

Definition
A form of electronic money that can be used
to pay forgoods and services, most often on the internet or another
electronic medium. Upon receiving the buyer'sauthorization of
the payment, the vendor contacts theissuing bank and receives
a transfer of funds.

direct deposit

Definition
The deposit of funds directly into a bank account as
aform of payment. Common uses for direct deposit include paychecks
and tax refunds.




discount window

Definition
A tool of monetary policy that provides short-term
funding to banks in the case of a shortage in liquidityresulting
from disruptions to the normal bankingenvironment. Borrowing from

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the discount windowmeans that a financial institution is borrowing
directly from a central bank, such as the Federal Reserve.
Therates applied to the financial institutions borrowing at the
discount window include the primary credit rate,secondary credit
rate and seasonal credit rate. See alsodiscount rate.

discrete compounding

Definition
The process of calculating interest and adding it to
existing principal and interest at finite time intervals, such as daily,
monthly or yearly.

dishonor

Definition
To not pay, such as for a bounced check.

disintermediation

Definition
The removal of an intermediary, or middleman, from
atransaction or communication. An example is the optionfor
a business to sell its product directly to consumers as opposed
to retailers.

draft

Definition
An instrument signed by a drawer to a draweerequesting payment at
a future time to a third party(often the drawer).

drawee

Definition
The party directed to pay the amount of a draft or check.


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drawer

Definition
The party who draws the draft upon another party forpayment.

drawing account

Definition
An account used to track withdrawals, such as withdrawals from
a partnership or proprietorship by apartner or owner.

dual banking

Definition
System of banking in the US where a banking institutioncan be either
chartered at a state level or chartered on a federal level by the
national government. This system of dual banking
gives banks more flexibility to adhere toregulations that
better match its circumstances andbusiness models.

E

effective annual interest rate

Definition
The actual annual interest rate that accrues, after taking into
consideration the effects of compounding (when compounding occurs
more than once per year).



EFT

Definition
Electronic Funds Transfer. Any transfer of funds that is initiated by
electronic means, such as an electronic terminal, telephone,
computer, ATM or magnetic tape.

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energizing stimulus

Definition
Monetary aid provided in order to ‘energize' or spur growth in the
economy. This is most likely to occur during stagnant or declining
economic times. Aid can be given by financial institutions,
governmental entities, wealthy individuals, or other entities with
more disposable funds.

evergreen

Definition
A type of contract that rolls over on a continuous basis until one of
the obligated parties cancels it. Each contractual period typically
covers a short amount of time so the continuation of the agreement
may occur multiple times during a one year period.

exact interest

Definition
Interest as calculated on a 365-day-a-year basis, as opposed to
interest calculated on a 360-day basis. Different kinds of lending
arrangements and securities make use of different interest
conventions.




exposure at default

Definition
EAD. The expected amount of loss that a bank would be exposed to
when a debtor defaults on a loan from that bank. To get an idea of


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their risk, banks will often calculate an EAD value for each loan, and
use those resulting figures to get an idea of their overall risk.

F

fail

Definition 1
In banking, it is the incapacity of a bank to honor its repayment
commitments to other banks. In inter-bank fund transfer systems this
inability can cause catastrophic cascading failure of several or all
banks associated with the transaction.

Definition 2
In securities trading, it is the situation where on the settlement date
either a seller is unable to deliver the contracted securities (called a
short fail) or the buyer is unable to pay for them (called a long fail).

fallout risk

Definition
Probability that a prospective borrower will not complete a mortgage
loan transaction and will 'fall out' of it. High fallout risk is usually
created when the finalization of the mortgage deal is contingent upon
another deal such as the sale of a property. If the deal does not go
through, it is said to have fallen out of the lender's pipeline of loans.
Banking practices require that the offered mortgage interest rate
must be held for 60 days or more while the borrower is under no
obligation (but has the right) to consummate the deal. The lender
thus has to hedge against the possibility of a market interest rate
increase in the interim through means such as a put option.

firewall

Definition



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The separation of banking and broker/dealer activities within the
same financial institution, in order to comply with the Glass-Steagall
Act.

float

Definition 1
The number of shares of a security that are outstanding and available
for trading by the public.

Definition 2
The amount of money or time represented by checks that are in
transit between deposit and payment, or credit card purchases that
are between the purchase and the payment.

Definition 3
To allow the value of currency to be determined solely by supply and
demand without outside interference.

floor limit

Definition
In credit card purchases, the maximum amount the merchant can
charge to the buyer's card without getting authorization. For a charge
above the floor limit, the merchant must obtain authorization from
the card issuer. A zero floor limit means every credit card transaction
has to be authorized. The floor limits usually come into effect where
swiping the card is not possible for any reason and the transaction is
not completed electronically. Otherwise, in all credit card transactions
conducted over phone lines (by using a magnetic card reader), the
merchants typically prefer to obtain electronic authorizations even for
small amounts. In case of debit cards, all transactions have to be
authorized. also called fallback limit (in the U.K.)




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Foreign Exchange Dealers' Association of India

Definition
FEDAI. A group of banks and financial institutions that deal in foreign
exchange transactions in India. FEDAI sets transaction commissions
and trading rules and guidelines.

forfeiting

Definition
Method of export trade financing, especially when dealing in capital
goods (which have long payment periods) or with high risk countries.
In forfeiting, a bank advances cash to an exporter against invoices or
promissory notes guaranteed by the importer's bank. The amount
advanced is always 'without recourse' to the exporter, and is less
than the invoice or note amount as it is discounted by the bank. The
discount rates depends on the terms of the invoice/note and the level
of the associated risk.

fractional reserve banking

Definition
A banking system in which only a fraction of the total deposits
managed by a bank must be kept in reserve. The amount of the
deposits equals the amount of the reserves times the deposit
multiplier. In the U.S., this system is maintained by the Federal
Reserve Board.




frozen account

Definition

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A bank account whose funds may not be withdrawn until a lien is
satisfied or an ownership dispute is resolved.

G

gold certificate

Definition
A certificate that indicates that its holder has a right to a certain
amount of gold. Gold certificates were created to allow investors to
purchase gold without having to physically take possession of it. Until
the 1930s the United States issued currency under a gold standard,
meaning that the U.S. dollar could be exchanged for its equivalent in
gold.

guarantee fee

Definition
Amount charged by a guarantor, usually as a percentage of an
associated sum but sometimes as a fixed fee. For example, a bank
may charge a percentage fee to guarantee the payment on a note
but may charge a fixed amount for converting a bearer check to a
manager's check whose payment is guaranteed by the bank. also
called g-fee.




H

holiday club account

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Definition
An interest-bearing savings account used by investors to save for the
holidays. The account lasts for one year, with the interest earned on
the account balance paid to the account holder before the holidays
begin (typically November). A penalty fee is assessed for withdrawals
made before the year-long period is complete. also called Christmas
club.

I

identity theft

Definition
Obtaining a person's personal and financial information through
criminal means. A thief uses this information for illegal purposes,
such as to make purchases using the victim's name. Thieves can find
information through discarded credit card or bank statements that
are not destroyed, and can find the information online in customer
databases.

inactive account

Definition
A bank or brokerage account in which there have not been any
transactions for an extended period of time. Brokerage accounts are
often charged a fee if there is not enough activity. In some extreme
cases, the accounts assets may be turned over to the state.

inconvertible currency

Definition
A type of currency that cannot be converted into gold, silver or any
other unit of account held by a government's central bank (here
called physical inconvertibility), or a currency that cannot be
exchanged at a financial institution for the value of that currency in
that institution's assets.

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indirect loan

Definition
Loan deal in which the actual lender may not be known to the
borrower. For example, most automobile purchase loans are not
financed by the car dealers (where the car buyers fill out and submit
the loan applications) but by a third party. This party (usually a
finance company, called the loan owner) is the one that approves the
loan terms, receives the loan payments installments from the car
buyers, and sues defaulting borrowers.

industrial bank

Definition
Bank owned by a non-banking company under section 2(c)(2)(H) of
the Bank Holding Company Act. In this arrangement while the bank is
state-chartered and is constantly under the full watch of government
regulators, its parent company (such as American Express, General
Electric, General Motors) is not. Industrial banks raise their capital by
selling investment certificates.

initial deposit

Definition 1
The amount of money required to open a savings or investment
account.

Definition 2
See down payment.




insured account

Definition

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Account at a bank, savings and loan, credit union, or brokerage, the
balance of which is insured by a federal or private insurance
organization.

interbank

Definition
Pertaining to the connection of two or more banks. When interbank
loans are given to one another, the rate of interest the banks charge
is called the federal funds rate.

interest-bearing

Definition
Paying interest.

J

joint account

Definition
Any account owned by two or more people

joint account agreement

Definition
A form required to open a joint account through a bankor broker.
Though the document has universalrequirements (such
as signatures of all related parties),financial institutions have
their own customized document for potential clients to use.




jumbo CD

Definition

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A CD with a very large denomination, usually $1 million or more.
These are usually bought by institutional investors who are interested
in low-risk investments. Jumbo CDs are usually in bearer form, and
havesecondary markets that are highly liquid. also callednegotiable
certificate of deposit.

jumbo mortgage

Definition
Home mortgage amount that exceeds the limit forqualifying for
government-backed low interest rateloans. This limit is
temporarily set at $729,750 and maychange at the end of year 2008.
Government-backed loans are bought or securitized by
the federal agenciesFannie Mae (FNMA) and Freddie Mac (FHLMC)
and are therefore available at comparatively low interest rates. To
qualify for these rates when buying
very expensivehouses the borrowers have to pay down the over-the-
limit amount from own resources.

K

kiting

Definition
Illegally benefiting from float, for example by depositing
and drawing checks between accounts at two or morebanks.




L



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late charge

Definition
A charge levied on an account for a payment that is either made late,
or is not made. The amount of the late charge is determined by
the financial institution.

late fee

Definition
A fee charged when a payment is not received on time. Some
common bills which almost always have a late feepolicy are credit
card payments, mortgage and student loan payments, and
car loan payments.

letter of credit

Definition
L/C. A binding document that a buyer can request from
his bank in order to guarantee that the payment forgoods will be
tranferred to the seller. Basically, a letterof credit gives the seller
reassurance that he will receivethe payment for the goods. In order
for the payment to occur, the seller has to present the bank with
thenecessary shipping documents confirming the shipmentof goods
within a given time frame. It is often used ininternational trade to
eliminate risks such as unfamiliarity with the
foreign country, customs, or political instability.




loan-deposit ratio

Definition

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The amount of a bank's loans divided by the amount of
its deposits at any given time. The higher the ratio, the more
the bank is relying on borrowed funds, which are generally more
costly than most types of deposits.

lockbox

Definition
A service offered by banks to companies in which
thecompany receives payments by mail to a post office boxand
the bank picks up the payments several times aday, deposits them
into the company's account, and notifies the company of the deposit.
This enables the company to put the money to work as soon as it's
received, but the amounts must be large in order for
thevalue obtained to exceed the cost of the service.

low balance method

Definition
A way to calculate interest based on the lowest balancein
an account over a specific period of time.

M

member bank

Definition
Bank which is part of the Federal Reserve System; or more generally,
a bank that is part of a central clearingor central banking system.
Such banks have to follow the rules and regulations put forward by
the central bank or the clearing system.



micropayment

Definition

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An electronic transaction consisting of the transfer of a very small
sum of money.

minimum balance

Definition
The minimum amount a bank or other financial institutionrequires
a customer to maintain in his or her account. The institution can set a
minimum balance level for any of its accounts, and this amount will
vary by institution. Usually, if the required minimum balance is not
maintained, the customer is charged various fees for failing to meet
the requirements.

money order

Definition
Financial instrument, issued by a bank or otherinstitution, allowing
the individual named on the order toreceive a
specified amount of cash on demand. Often used by people who do
not have checking accounts. One of the main benefits of
a money order is that it is more trusted than a personal check,
because it is prepaid. Money orders can be obtained at
many locations, including a post office, grocery store, or bank, and
may require a small fee.

Moodys

Definition
One of the most prominent credit rating agencies in theU.S.




N

near money

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Definition
Highly liquid assets which are not cash but can easily be converted
into cash, such as bank deposits and Treasury Bills. similar to cash
equivalents.

negative duration

Definition 1
In banking, the situation where the total duration of abank's assets is
shorter than that of its liabilities. Hence the duration of its equity is
negative because its long-term liabilities are funded by its short-
term assets. Thetheoretical value of the bank's equity will rise and fall
with the rise and fall of interest rates.

Definition 2
In securities trading, an uncommon situation where the traditional
yield-price ratio is reversed: a bond's priceincreases as
the interest rates go up, and decreases when the interest rates fall.
For example, a callable bondwith the call in effect will sell at
a yield that is about the same as the coupon rate. Any fall in its yield
will not increase its price because it is already selling at its peakprice
due to the call. The term 'duration' refers tomodified duration which
is the Macaulay durationadjusted for compounding.

negotiable

Definition 1
The ability to be sold or transferred to another party as
a form of payment. Something which is negotiable is transferable
by endorsement and delivery. A negotiable instrument could be a
check made out to you, because you could endorse it for payment to
you or transfer it to someone else as payment to them.

Definition 2
For a price or other terms of a contract or agreement, the ability to
be adjusted. For example, when a price is said to be negotiable,

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it means that the seller is open to the possibility of reducing the
price.

negotiable instrument

Definition
A transferable, signed document that promises to paythe bearer a
sum of money at a future date or on demand. Examples
include checks, bills of exchange, andpromissory notes.

Negotiable Order of Withdrawal

Definition
NOW. An interest-bearing checking account at a bank orsavings and
loan.

net interest income

Definition
NII. A financial measure for banks, calculated by
theamount of money the bank receives
from interest onassets (commercial loans, personal mortgages, etc)
minus the amount of money the bank pays out for interest
on liabilities (personal bank accounts, etc). Although usually
calculated for banks, this figure can also be calculated for
other corporations, simply by subtracting the amount of
interest paid on liabilities from the amount of interest earned from
assets.

nostro account

Definition
A banking term to describe an account one bank holdswith a bank in
a foreign country, usually in the currencyof that foreign country.
O

online banking

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Definition
A system allowing individuals to perform bankingactivities at
home, via the internet. Some online banks are traditional banks
which also offer online banking, while others are online only and
have no physical presence. Online banking through traditional banks
enable customers to perform all routine transactions, such
as account transfers, balance inquiries, billpayments, and stop-
payment requests, and some even offer online loan and credit
card applications. Accountinformation can be accessed
anytime, day or night, and can be done from anywhere. A few online
banks update information in real-time, while others do it daily. Once
information has been entered, it doesn't need to be re-entered for
similar subsequent checks, and future payments can be scheduled to
occur automatically. Many banks allow for file transfer between
their program and popular accounting software packages, to
simplify recordkeeping. Despite the advantages, there are a
fewdrawbacks. It does take some time to set up and get used to an
online account. Also, some banks only offer online banking in
a limited area. In addition, when an account holder pays online,
he/she may have to put in acheck request as much as two weeks
before thepayment is due, but
the bank may withdraw the moneyfrom the account the day that
request is received, meaning the person has lost up to two weeks
of intereston that payment. Online-only banks have a few additional
drawbacks: an account holder has to mail indeposits (other
than direct deposits), and some servicesthat traditional banks offer
are difficult or impossible for online-only banks to offer, such
as traveler's checks andcashier's checks.

ordinary interest

Definition
Interest as calculated on a 360-day-a-year basis.


outstanding check

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Definition
A valid check which, although possibly already cashed, has not yet
been returned for processing to the financial institution from where it
originated.

overdraft

Definition
The amount by which withdrawals exceed deposits, or
the extension of credit by a lending institution to allow for such a
situation.

overdraft protection

Definition
A checking account feature in which a person has a line of
credit to write checks for more than the actual account balance.
Instead of getting charged about $25 for bouncing
a check, overdraft protection will in effect provide
the account holder with an instant loan. Theinterest rate will be
extremely high, but if it is paid off quickly it is usually much
less expensive than thebounced check fee. Some banks do charge a
fee when an account balance falls below zero even if the account
holder has overdraft protection, but it's still significantly less than the
bounced check fee.

P

passbook

Definition
Book issued by a bank or savings
institution to recorddeposits, withdrawals, and interest earned in
a savings account.

pay


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Definition
To compensate someone for something. Or gross salary.

payment in kind

Definition
Payment made in the form of goods and services, rather than cash.

PIN

Definition
Personal Identification Number. Code used by anindividual so that
he/she can access his/her bank account at an ATM machine, but
others can't.

postdate

Definition
To put a future date on a document or check, postponing when it
becomes effective or negotiable.

private banking

Definition
The providing of banking services to very wealthyindividuals and
families. Many financial services firmsrequire a person or family to
have a certain minimum net worth to qualify for private banking
services.




Q

quantitative easing

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Definition
A process of increasing the money supply, typically only seen
when interest rates have already been reduced to zero and when
the government is still trying to stop acredit crunch situation. The
first notable usage ofquantitative easing was by the Bank of Japan in
the early 2000s, and similar tactics were used again in 2008 by
the Federal Reserve to deal with the United Statescredit crisis.

R

reconciliation
Definition
Adjusting one's checkbook balance to match a bank statement.

regional bank

Definition
A bank that operates in one region of a country, as opposed to
a money center bank, which operates nationally and globally.

retail banking

Definition
Banking services for individual customers.

risk-free return

Definition
A theoretical interest rate that would be returned on
aninvestment which was completely free of risk. The 3-
month Treasury Bill is a close approximation, since it is virtually risk-
free.

risk-weighted asset


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Definition
A bank's assets weighted according to credit risk. Some assets, such
as debentures, are assigned a higher riskthan others, such as cash.
This sort of asset calculation is used in determining the capital
requirement for afinancial institution, and is regulated by the Federal
Reserve Board.

rubber check

Definition
A check which a bank returns because it is not payabledue to
insufficient funds. also called bounced check.

run

Definition
Situation in which many customers try
to withdrawaltheir bank deposits simultaneously, and the
bank'sreserves are not sufficient to cover the withdrawals.

S

S&L

Definition
Savings and Loan. A federally or state chartered financial
institution that takes deposits from individuals, fundsmortgages,
and pays dividends.

SAIF

Definition
Savings Association Insurance Fund. Entity created in 1989 as part of
the savings and loan bailout. Providesdeposit insurance to thrifts.

saving


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Definition
The part of a person's income that is not spent.

savings account

Definition
A deposit account at a bank or savings and loan whichpays interest,
but cannot be withdrawn by check writing.

savings deposits

Definition
Accounts that pay interest and can be withdrawn on upon demand.
Offered by banks, credit unions, andSavings and Loans.

segregated account

Definition
A separate account used by brokers to keep their
customers' money separate from the firm's money. This is done for a
few reasons, including creating a clear separation between the
two groups of money so neither is used for the wrong purpose, and
also to insure that the money can be easily identified as belonging
tocustomers in case anything happens to the firm (such
asbankruptcy).

shadow banking system

Definition
System of non-financial institutions that borrow money in the short
term and take that money to invest in long-term assets.
Shadow banking systems are able to
avoidstandard banking regulations through the use of credit
derivatives. These are also said to be one of the
majorproblems which contributed to the subprime
mortgagecrisis around 2007-2008.


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signature card

Definition
A card that must be signed by an individual who
isopening an account at a bank or other similar institution. This card
is kept on file, and it is used by the bank to confirm the identify of
the person when they return, for example to access their safe deposit
box.

simple interest

Definition
The interest calculated on a principal sum, not compounded on
earned interest.

special endorsement

Definition
An endorsement of a check authorizing payment to anentity other
than the entity to which the check was originally written. A special
endorsement consists of asignature and a statement identifying the
entity to which the check should be paid.

stock association

Definition
A savings association organized as a capital stockcorporation.

stop payment

Definition
An order to a bank not to honor the payment of a check after it has
been delivered but before it has been cashed.

straight paper

Definition

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Unsecured notes, bills of exchange and/or banker's acceptances.

subprime loan

Definition
A loan offered to an individual who does not qualify for a loan at
the prime rate due to their credit history. If alender thinks that there
is an above-average riskinvolved in giving a loan to a certain
individual, they will sometimes offer them a subprime loan, which has
aninterest rate higher than the prime rate. The subprime rate offered
by the lender can vary from institution to institution.

T

tax and loan account

Definition
Banking account present at private banking institutionsin the name of
the Federal Reserve Bank that is used as an operating
expenses account for the United
StatesTreasury. Tax and loan accounts are also used
todeposit funds received from taxation and social
securitycontributions from employers.

telegraphic transfer

Definition
T/T. A method of payment in which funds are
transferredvia telegraph or cable. Telegraphic transfers are most
common in business conducted in developing countries, where
other types of infrastructure, such as computerized payments, may
not be available.


teller



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Definition 1
An individual employed by a banking institution thatdeposits and
disperses funds received by the institution's customers. Tellers
perform a variety of tasksincluding assisting with customer
service and reconciling banking statements.

thrift

Definition
An organization formed for the purpose of
holdingdeposits for individuals; examples include savings
banksand savings and loans.

time deposit

Definition
Savings account or CD held in a financial institution, usually a bank,
for a fixed term or with the understanding that
the customer can withdraw only by giving advanced notice.

transfer

Definition 1
A changing of ownership, such as real estate, a securityor
a financial account, from one party to another.

Definition 2
A movement of funds from one account to another.

transferor

Definition 1
One who transfers something to someone else.

Definition 2
Specifically, a beneficiary of a transferable letter of credit, who
transfers the credit to a second beneficiary.

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traveler's check

Definition
Check issued by a financial institution which functions ascash but is
protected against loss or theft. Traveler's checks are useful when
traveling, especially in case of overseas travel when not
all credit and debit cardscarried by a person will be accepted.
A charge orcommission is usually incurred when a
person exchangescash for traveler's checks, though
some issuers provide them free of charge.

U

universal banking

Definition
A system of banking where banks are allowed to provide a variety
of services to their customers. In universal banking, banks are
not limited to just loans, checking and savings accounts, and other
similar activities, but are allowed to offer investment services as well.
Universal banking is less common in the United Statesthan in Europe.

V

variable rate

Definition
Any interest rate or dividend that changes on a periodic
basis. Variable rates are often used for convertibles,mortgages, and
certain other kinds of loans. The changeis usually tied
to movement of an outside indicator, such as the prime interest rate.
Movement above or below certain levels is often prevented by a
predeterminedfloor and ceiling for a given rate. also
called adjustable rate.

vault cash

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Definition
Cash that a bank keeps in its vault for daily transactions, such as
check cashing or cash withdrawals. It is considered part of a
bank's reserve obligation to theFederal Reserve Bank.

W

wholesale banking

Definition
Banking services for financial institutions.

window

Definition
The discount window of a Federal Reserve Bank.

wire transfer

Definition
An electronic transfer of funds. Wire transfers typically
transfer money from one bank account to
another. U.S.domestic transfers are typically conducted using
theFederal Reserve Wire Network, while internationaltransfers are
typically transacted via SWIFT. WesternUnion is the most common
way to complete transactionsbetween individuals, not financial
institutions. Wire transfers are considered the safest way to transfer
money internationally.




withdraw


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Definition 1
To take money out of an account.

Definition 2
To retract, as with an offering.

withdrawal

Definition
A removal of funds from an account.

Z

Zero Balance Account

Definition
ZBA. A checking account which always maintains abalance of zero.
Whenever the corporation needs towrite a check,
they transfer money into the account for the exact sum for which the
check will be written, so that once the check is cashed there will once
again be a balance of zero in the account. This helps the corporation
avoid having money in too many differentplaces.




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