Financial Glossary - Glossary of Financial Terms

GLOSSARY of FINANCIAL TERMS

Academic Consultants

An advisory group initiated by the Board in the 1960s to provide a forum for the exchange of views between the Board and members of the academic community in economics and banking.

Acquirer

In an electronic money system, the entity or entities (typically banks) that hold deposit accounts for merchants and to which transaction data are transmitted.

Acquisition

The process of buying or acquiring some asset. The term can refer to the purchase of a block of stock or more often, to the acquisition of an entire company.

Adaptive Selling

A sales method where the offer is changed to better match a prospective customer or situation. Online merchants can take advantage of this through analysis of both general and user specific patterns.

Adjustable Rate Mortgages (ARM)

A mortgage having an interest rate that varies depending on the change in some outside standard such as prime rate, interest rate on United States Treasury securities, or the Inflation rate. The lender can increase or decrease the interest rate on the mortgage at specified intervals based on changing market conditions. The mortgage agreement specifies when the interest rate may change and any limits imposed.

Agreement Corporation

An Agreement corporation is a federally or state-chartered corporation that has entered into an agreement or understanding with the Board that it will not exercise any power that is impermissible for an Edge corporation. See also Edge Act Corporation.

Agricultural Prices

An index prices received by farmers in the market. The statistics is expressed as a percentage change from the previous month. It is a useful predictor of price changes on the grocery shelf, which are reflected in the consumer price index. See also Consumer Price Index.

Agricultural Services

This industry includes forestry and fisheries, as well as wages and salaries of U.S. residents employed by international organizations, foreign embassies, and consulates in the U.S

Alternative Financial Sector (AFS)

State-regulated financial sector serving consumers who do not frequent banks or other mainstream financial services. Check cashing outlets, pawnshops, refund-anticipation loans and rent-to-own programs are all part of the alternative financial sector. Also referred to as "fringe banking" and "informal financial services" sector.

Alternative Payment Systems

Payment systems such as those based on stored value cards, electronic currency, and debit or credit cards. These are considered alternative channels to deliver traditional banking and related products and services. See also Stored Value Card, Electronic Cash, Debit Card, Credit Card.

American National Standards Institute (ANSI)

A non-profit organization that sponsors industry standards for information management and financial communication. The American Bankers Association has responsibility for the ANSI financial industry standards committee (ANSI X9). See also International Organization for Standardization.

Amortization

The gradual and systematic reduction of debt by equal periodic payments. Such payments generally must be sufficient to recompense current interest due during the repayment period and to repay the entire principal by the time the loan reaches maturity. An amortization schedule is a table that shows the amounts of principal and interest due at regular intervals, and the corresponding unpaid principal balance at the time each installment payment is made. See Also Debt, Interest, Principal.

Annual Percentage Rate (APR)

The rate required by Truth in Lending laws. It is designed to show customers the total cost of credit, including the stated interest rate plus certain finance and service charges. See also Truth in Lending Act.

Anonymous Payment Mechanism

Protocols set up to protect the identity of a buyer in transactions, thereby providing the electronic equivalent of a cash transaction.

Antidumping Restrictions

A government regulation or law to prevent or correct a dumping of products or services by multinational company in foreign market. For example, the foreign country might outlaw a particular multinational company engaging in such practice within its borders. Alternatively, the foreign country might assess a very high tariff on dumping and the resulting price disparity.

Applicable Federal Rates (AFR)

The statutory interest rate that must be charged for most loans and installment agreements to avoid imputation of income under the Internal Revenue Code. The Treasury Departments determine three applicable federal rates monthly based on the current market yields on outstanding obligations of the federal government with similar maturities. The federal short-term rate is applicable to transactions having terms of three years or less the federal midterm rate is applicable to transaction having terms of three to nine years, and the federal long-term rate is used for transaction having terms in excess of nine years. See also Interest, Loan, Installment Credit.

Appraisal Fee

The charge for estimating the value of property offered as security.

Asset Allocation

A bank's funds management strategy in which funds are assigned to securities and loan asset categories and then reallocated as loan demand changes.

Asset Securitization

A process whereby loans, receivables and other illiquid assets with similar characteristics in the balance sheet are packaged into interest-bearing securities that offers attractive investment opportunities. See also Loan.

Assets for Independence Act

(Public Law 105-285; 42 U.S.C. 604). Federal law establishing a national Individual Development Account (IDA) demonstration to determine how effective IDAs and asset-building strategies are in helping low-income people save, acquire assets, and achieve economic self-sufficiency. See also Individual Development Account.

Association for Payment Clearing Services (APACS)

APACS is an organization, which is responsible in the UK for matters relating to money transmission and payment clearing activities generally. The are 23 members of APACS and three autonomous clearing companies operating under the umbrella of APACS- BACS Limited, CHAPS Clearing Company Limited and Cheque and Credit Clearing Company Limited.

Auction Market

Trading securities through exchange brokers with buyers and sellers competing against one another to get the best prices. The New York Stock Exchange is a prime example.

Authentication

Identification of a bond certificate as having been issued under a specific indenture, thereby validating the bond. Also, legal verification of the genuineness of a document, as by the certification and seal of an authorized public official.

Automated Clearing House (ACH)

A computer-based clearing and settlement operation, often operated by a Federal Reserve Bank, established for the exchange of electronic transactions among participating depository institutions. Such electronic transactions can be substituted for paper checks used to make recurring payments such as mortgages, or in direct deposit distribution of federal and corporate benefits payments including Social Security payments. The U.S. Treasury uses the ACH extensively to pay certain obligations of the government.

Automated Loan Machine (ALM)

Unmanned consumer loan origination machine that resembles a stand-alone ATM in size. The unit consists of a touch-screen personal computer, keyboard, MICR reader, printer, modem, digital camera, and a digital signature pad. Consumers enter their social security number and other vital data and declare how much money they would like to borrow. The machine orders a credit report and scores the consumer for qualification. If the borrower is denied, a denial letter is generated. If the borrower is approved, the unit asks which account to deposit the funds into (this can be directly read from a check or deposit slip using the MICR reader), deposits those funds via ACH credit, and books the loan on the banks core system. See also Loan.

Automated Teller Machine (ATM)

It's computer terminal activated by a magnetically encoded Bank Card, allowing consumers to make deposits, obtain cash from checking or saving accounts, pay bills, transfer money between accounts, and do other routine transactions as they would at a bank teller window. ATMs can be programmed to dispense bank statements, public assistance benefits, and cash checks to the penny. Groups of banks sometimes share ATM networks located throughout a region of the country that may include portions of several states. See also Debit Card, Magnetic Stripe Card.

Automatic Transfer Service Account (ATSA)

A depositor's savings account from which funds may be transferred automatically to the same depositor's checking account to cover a check written or to maintain a minimum balance.

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Balance Inquiry

A basic function usually provided by home banking programs by which consumers can use a phone, personal computer or other electronic device to determine their balance of funds in a bank account.

Balance of Payments

The record of a country's transactions in goods, services, and assets with the rest of the world; also the record of a country's sources (supply) and uses (demand) of foreign exchange.

Balance of Trade

A country's merchandise exports minus its merchandise trade balance.

Balloon Mortgage

A mortgage in which the debt service (interest and principal) that is paid regularly will not result in the complete payment of the loan at the end of the mortgage term. The payment that represents the amount of principal still due at the end of the term is called the balloon payment. "To balloon" a mortgage is to schedule the amortization payments over a longer period than the term of the mortgage. See also Amortization, Balloon Payment, Principal.

Balloon Payment

A final lump-sum payment of unpaid principal remaining at the end of a Balloon Payment and in certain types of leases. The extra payment extinguishes the debt. See also Balloon Mortgage, Principal.

Bank

A financial business, chartered by the state or federal government. Banks borrow money at one rate from individuals and organizations that have excess cash. They then lend the money at higher rates to entities that are in need of cash. In recent years service charges have joined interest rate spreads as a major source of bank revenue.

Bank Examination

A periodic review of a bank's assets and liabilities by chartering agency or bank supervisory agency. Bank examiners focus their attention on three main areas: the competence of bank management; the quality of bank assets, principally loans; and compliance with state of federal banking regulation. See Also Bank Supervision.

Bank for International Settlements (BIS)

An international organization, based in Basel, Switzerland, that acts as a bank for central banks of major industrial countries. Chartered in 1930 by a group of European central banks, the BIS has evolved since the 1960s into an influential monetary institution, assisting central bankers in investing monetary assets. The Risk-Based Capital standard, adopted by banks in Group of 10 countries by 1988, in which loans and other bank assets are classified by risk, was formulated by central bankers. The Federal Reserve Board of Governors regularly takes part in BIS meeting, and other central banks. See also G-10 Countries, Board of Governors.

Bank Holding Company (BHC)

A company that owns or controls one or more banks. The Board of Governors has responsibility for regulating and supervising bank holding companies, such as approving acquisitions and mergers and inspecting the operations of such companies. This authority applies even though a bank owned by a holding company may be under the primary supervision of the Comptroller of the Currency or the FDIC. See also Board of Governors, Comptroller of the Currency, Federal Deposit Insurance Corporation.

Bank Regulation

The formulation and issuance by authorized agencies of specific rules or regulations, under governing law, for the conduct and structure of banking.

Bank Secrecy Act

A federal act requires banks to report cash transactions that exceed $10,000 in any one day. The act also requires certain records must be maintained (copies of checks paid, deposits, and so on). The act is intended to inhibit laundering of funds obtained through illegal activities. Every bank is required to name a Bank Secrecy Compliance Officer. See Also Laundered Money

Bank Supervision

Financial regulators' activities that focus on the safety and soundness of individual banks, and involves in the general and continuous oversight of the banking industry to ensure that banks are operated prudently and in accordance with applicable statutes and regulations. See also Bank examination.

Bank Wire

An electronic communications network owned by an association of banks and used to transfer messages between subscribing banks. Bankwire also offers a clearing service called Cashwire that includes a settlement facility. See also Fedwire.

Bank-Owned Community Development Corporation

A corporation, either for-profit or non-profit, that is capitalized by one or more banks. It can be a subsidiary of an individual bank or bank holding company, or a shared ownership corporation among several banks; other financial institutions, community-based organizations, and public and private investors. Requirements and restrictions on a bank-owned CDC's structure and activities vary according to its regulatory agency, although a CDC's purpose must be to make debt and/or equity investments in projects that promote community economic development. See also Community Development Corporation.

Bankers Acceptance

Bankers acceptances are negotiable time drafts, or bills of exchange, that have been accepted by a bank which, by accepting, assumes the obligation to pay the holder of the draft the face amount of the instrument on the maturity date specified. They are used primarily to finance the export, import, shipment, or storage of goods.

Banking Act of 1933

The first major banking legislation of the Roosevelt administration, it created the Federal Deposit Insurance Corporation to provide insurance of deposits of member banks. The Act also provided for the regulation of banks, and limited branch banking. Also known as the Glass-Steagall Act. See also FDIC, Glass-Steagall Act.

Banking Industry Technology Secretariat (BITS)

It's a division of The Bankers Roundtable. The BITS board is made up of the chairs of the ten largest BHCs and is mandated to foster the growth and development of electronic banking in an open environment. See also Electronic Banking.

Bankruptcy

State of insolvency or an organization--in other words, an inability to pay debts. There are two kinds of legal bankruptcy under the U.S. law: involuntary, when one or more creditors petition to have a debtor judged insolvent by a court; and voluntary, when the debtor brings the petition. In both cases, the objective is an orderly and equitable settlement of obligation. See also Chapter 7, Chapter 11, Chapter 13.

Barter

Trading goods or services for other goods or services without using legal currency.

Beige Book

A summary of commentary on current economic conditions by Federal Reserve District. This report is published eight times per year. Each Federal Reserve Bank gathers anecdotal information on current economic condition in its Districts through reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources. The Beige Book summarizes its District and sector information. See also Federal Reserve Bank.

Bequest

It is a giving of assets, such as stocks, bonds, mutual fundss, real estate, and personal property, to beneficiaries through the provisions of a will. See also Will.

Bill of Materials Function

Ability to present predefined lists of items routinely required by buyers for a specific purpose.

Bill Payment Service Provider

BPSPs offer a number of value added services to the Biller industry. BPSPs offer a tremendous range of services as outsourcing partners for their customers. Some typical services offered include: Design, printing and inventory management of statement forms and inserts, Printing, inserting, and mailing of statements, integration of printing services with the Biller's existing computer systems, receipt and processing of consumer payments.

Bill Presentment

An online system that allows customers to receive and view the bill on a computer screen, and then pay the bill electronically. Users can pay their bills immediately and the money is transferred from their account.

Bimetallism

A government's commission to exchange its currency on demand for stated amounts of either of two metals, usually gold or silver. Also bimetallic standard. Compared with symmetallism. See also Symmetallism.

Board of Governors

Central, governmental agency of the Federal Reserve System, located in Washington, D.C., and composed of seven members, who are appointed by the President and confirmed by the senate. The Board of Governors is responsible for domestic and international economic analysis; with other components of the System, for the conduct of monetary policy; for supervision and regulation of certain banking organizations; for operation of much of the nation's payment system; and for administration of most of the nation's laws that protect in credit transactions. See also Monetary Policy, Payment System.

Bond

A bond is a contract in which an issuer undertakes to make payments to an owner or beneficiary when certain events or dates specified in the contract occur.

Book-Entry

One form in which Treasury and certain government agency securities are held. Book-entry form consists of an entry on the records of the US Treasury Department, a Federal Reserve Bank, or a financial institution.

Book-entry Securities

Securities that are recorded in electronic records, called book entries, rather than as paper certificates. Ownership or U.S. government book-entry securities is transferred over Fedwire. See Also Definitive Securities, Fedwire.

Borrowed Reserves

Reserves that eligible depository institutions obtain by borrowing from the Federal Reserve through discount window.

Borrower

Any legal entity that obtains funds from another for a period of time. In the case of an extension of credit, the borrower usually signs a note as evidence of the indebtedness.

Broker's Loan

A loan that the originated sells to a third party for a fee. The buyer of the loan bears the interest rate risk and the default risk.

Bubble

A speculative venture that has little chance of making a profit. When this fact becomes evident, the bubble burst and prices fall.

Budget Deficit

The dollar amount of on-budget government expenditures minus the dollar amount of government revenues. A negative (positive) amount indicates that the government is collecting less (more) than it is spending and is viewed as stimulative for the U.S. and global economy.

Business Cycle

The time period from the top of a Gross National Product rise to the bottom of a fall and back to the base line. See also Gross National Product.

Business Incubator

A facility that provides below-market rents, shared services, and technical assistance to new businesses. Tenants typically include manufacturing, service, and technology firms. Sponsors may be private developers, CDCs, public agencies, or universities.

Buydown

A lump sum payment made to the creditor by the borrower or by a third party to reduce the amount of some or all of the consumer's periodic payments to repay the indebtedness. See also Borrower, Creditor, Debt.

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Call Center

Centralized customer service and sales facility through which a majority (and sometimes all) of customer calls are routed. The idea is to equip call center staff with access to customer relationship information so they can answer the customers' question on the first phone call, significantly reducing the amount of research staff and overhead a bank must support. This can either be run by the bank itself or by a third party service provider on behalf of the bank.

Call Report

The informal name for Report of Condition and Income. A quarterly report of income and condition required by a financial institution's primary supervisory agency: the Comptroller of the Currency for National Banks; Federal Reserve Banks for state members; the Federal Deposit Insurance Corp. for insured nonmember banks; or state banking agencies for state chartered banks and trust companies. See Report of Condition and Income.

CAMELS Rating

A rating sytem that measures of the relative soundness of a bank. The components of the CAMELS rating- stand for Capital, Assets, Management, Earnings, Liquidity and Sensitivity to market risk. They are calculated on a 1-5 scale, and are used by bank supervisory agencies to evaluate bank condition. A rating of 1 is given to banks with the strongest performance ratings, while banks given a CAMELS rating of 4 or 5 are placed on the watch list of banks in need of supervisory attention. Individual CAMELS ratings are disclosed to bank management, though not to the general public. See Also Capital Adequacy..

Capacity Utilization

The ratio of units produced to the capacity level of the production facility. A high ration reflects manufacturing productivity.

Capital Adequacy

A requirement that the banks maintain equity capital sufficient to protect depositors from losses and support asset growth. Capital adequacy measures financial leverage; as leverage increases less capital is available to cover unexpected loss. Highly leveraged banks have more volatile earnings than banks with adequate capital, and are more closely monitored by banking regulations. See also CAMELS Rating.

Cash Flow

Cash available to an organization from its business operations investments. A positive cash flow indicates net operating income is sufficient to cover expenses, while a negative cash flow means expenses are growing faster than revenues. Lenders, when making loans to a business, often look first at cash flow from operations before collateral pledged by the borrower, as the primary source of loan repayment; Flow of funds through a bank, an important measure of its overall Liquidity, or ability to meet customer demand for funds. It is usually summarized in a cash flow report indicating a bank's sources of funds (mostly deposits) and uses of funds (mostly loans). See also Flow of Funds, Liquidity.

Cease-and-Desist Order

An order issued after notice and opportunity for hearing, requiring a depository institution, a holding company, or a depository institution official to terminate unlawful, unsafe, or unsound banking practices. Cease-and-desist orders are issued by the appropriate federal regulatory agencies under the Financial Institutions Supervisory Act and can be enforced directly by the courts.

Certificate Authority (CA)

An organization, such as a financial institution or trusted third party, that issues and manages the authenticity of digital certificates for use in electronic commerce.

Certificate of Deposit (CD)

A form of time deposit at a bank or savings institution; a time deposit cannot be withdrawn before a specified maturity date without being subject to an interest penalty for early withdrawal. Small-denomination CDs are often purchased by individuals. Large CDs of $100,000 or more are often in negotiable form, meaning they can be sold or transferred among holders before maturity. See also Time Deposit, Bank.

Certificates

Printed documents issued by a corporation as evidence of its obligation to the holders of the certificates. Also called securities. See also Securities.

Certified Check

A check for which a bank guarantees payment. When the check is certified, it legally becomes an obligation of the banks, and the funds to cover it are immediately from the depositor's account.

Certified Development Company

(also known as a 504 corporation) A non-profit corporation that provides small businesses with ten and twenty-year private Small Business Administration guaranteed financing. The structure and activities of the CDC must meet certain SBA guidelines, including a membership representing public agencies, lenders, businesses, and community-based organizations. See also Bank-Owned Community Development Bank.

CFMMI

See Chicago Fed Midwest Manufacturing Index

Chapter 11

A provision of bankruptcy laws allowing a bankrupt company to remain in business while its owners attempt to pay its debts. See Bankruptcy.

Chapter 13

Adjustments of debts of an individual with regular income under the Federal Bankruptcy Code. Chapter 13 enables a debtor who is an individual to develop and perform a plan for the prepayment of creditors over an extended period. The plan might provide for full or partial repayment. Chapter 13 allows the debtor to retain his or her property, unless he or she agrees otherwise in the plan. See Bankruptcy.

Chapter 7

A provision of bankruptcy laws wherein a company is require to liquidate its assets to pay of its creditors. See Bankruptcy.

Check

A demand deposit instrument (a draft) signed by the maker and payable to a person named or to a bearer upon presentation to the bank on which it is drawn.

Check 21

The Check 21 Act facilitates truncation through expanded use of electronic processing technologies to improve the efficiency and reduce the cost of the nation’s check collection system. The law provides for a new negotiable paper instrument called a substitute check, which can be used in place of the original paper check without an agreement. This allows paper items to be truncated early in the collection or return process, with image cash letters replacing paper cash letters.

Check Cashing Outlet (CCO)

Businesses that cash government, payroll, and unsecured personal checks for consumers. Additional services may include payday loans, money orders, and wire transfers. CCO growth has taken place in primarily lower-income neighborhoods where traditional banking services may be inaccessible or unavailable. The convenient locations and extended business hours of check cashing outlets are additional incentives for their use. Often, the fees charged by CCOs may be greater than those charged by traditional banking services. See Also Alternative Financial Sector, Informal Financial Services.

Check Clearing

The movement of checks from the banks or other depository institutions where they are deposited back to those on which they are written, and funds movement in the opposite direction. This process results in credits to accounts at the institutions of deposit and corresponding debits to the accounts at the paying institutions. The Federal Reserve participates in check clearing through its nationwide facilities, though many checks are cleared by private sector arrangements. See also Clearing, Clearinghouse, Regional Check Processing Center (RCPC).

Check Kiting

A person writes a check without having enough money in his or her account to cover it, but he or she expects to be able to deposit the money before the check reaches the bank.

Check Truncation

Practice of holding a paper check at the bank at which it was deposited (or at intermediary bank) and electronically forwarding the essential information on the check to the bank on which it was written. A truncated check is not returned to the writer.

Chicago Fed Midwest Manufacturing Index (CFMII)

The Chicago Fed Midwest Manufacturing Index (CFMMI) is a monthly estimate of manufacturing output in the Seventh Federal Reserve District by major industry. The Midwest is defined as the five states comprising the District: Illinois, Indiana, Iowa, Michigan and Wisconsin. It is a composite index of 16 manufacturing industries that uses electrical power and hours worked data to measure monthly changes in regional activity.

Chicago Fed National Activity Index (CFNAI)

It is a monthly index designed to better gauge overall economic activity and inflationary pressure. The CFNAI, which is a weighted average of 85 existing monthly indicators of national economic activity, is constructed to have an average value of zero and a standard deviation of one. Since economic activity tends toward trend growth rate over time, a positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend.

Circuit Breakers

It measures instituted by the major stock and commodities exchanges to halt trading temporarily in stocks and stock index futures when the market has fallen by a specified amount in a specified period. Circuit breakers were instituted after Black Monday in 1987 and modified following another sharp market drop in October 1989. Their purpose is to prevent a market free fall by permitting a rebalancing of buy and sell orders.

Clearing

A movement of checks from banks where they are deposited back to those on which they were written, and funds movement in the opposite direction. This results in credit to the banks where funds are deposited and corresponding debits to the accounts of paying institutions. The Federal Reserve operates a nationwide check clearing system, including numerous Regional Check Processing Centers. See also Clearinghouse, Regional Check Processing Centers.

Clearing House Automated Payments System (CHAPS)

A private telecommunication and payment system for interbank sterling payments operated by the London clearing house for banks in the London area.

Clearing House Interbank Payments System (CHIPS)

An automated clearing system used primarily for international payments. This system is owned and operated by the New York Clearinghouse banks. The CHIPS system provides settlement services for international commerce and trade payments, foreign exchange trades and Eurodollar payments among major U.S. and international banks. It engages Fedwire for settlement

Clearinghouse

An institution where mutual claims are settled between accounts of member depository institutions. Clearinghouses among banks have traditionally been organized for check-clearing purposes, but more recently have cleared other types of settlements, including electronic fund transfers. See also Check Clearing.

Co-Housing

A hybrid form of housing that combines private and communal forms of living. Residents occupy individual, complete housing units and share additional kitchen, dining, and recreational facilities with other residents. Ownership and design may take a variety of forms. Limited equity cooperatives are a common form of urban co-housing.

Collaborative Commerce (C-Commerce)

The collaborative, electronically enabled business interactions among an enterprise's internal personnel, business partners, and customers throughout a trading community. The trading community could be an industry, industry segment, supply chain or supply chain segment.

Collateral

An asset such as an automobile or a piece of property that a person uses to take out a loan, promising to give the asset to the lender if loan payments cannot be met. Collateral also refers to the collection of receivables, such as mortgages, which are used to back the interest and/or principal security.

Commercial Bank

A state bank or National Bank, owned by stockholders, that accepts deposits and makes loans to business, regardless of its other services. Commercial bank deposits are insured by the Bank Insurance Fund, a federal insurance fund managed by the Federal Deposit Insurance Corporation. See also Federal Deposit Insurance Corporation, Independent Bank; NonBank Bank.

Community Action Agency

A publicly and privately funded agency that provides social services to lower-income residents in surrounding communities, such as fuel assistance, daycare, and education. CAAs may also be involved in the development and management of affordable housing.

Community Bank

See Independent Bank

Community Development Block Grant (CDBG)

Flexible federal aid that is intended for use by cities and towns to promote neighborhood revitalization, economic development, and improved community facilities and services. Specific uses of the funds are left to the discretion of local governments. Funds are administered by either state or city offices of economic development depending on the size of the city or town (see Entitlement Community.)

Community Development Corporation (CDC)

A community-based organization that is owned and controlled by community residents and is engaged in affordable housing, business and/or commercial development. Although CDCs vary in size and scope, the vast majority are non-profit, tax exempt 501(c)3 organizations. All CDCs have a board of directors composed of local residents, public officials, funders, bankers, relevant professionals, and/or community leaders. See Also Bank-Owned Community Development Corporation.

Community Development Credit Union (CDCU)

A non-profit credit union which is chartered to serve the members of a lower-income community. The structure is similar to a regular credit union, although as a non-profit organization it is tax exempt. Federally chartered CDCUs are regulated by the state. CDCU services vary depending on their level of capitalization. In general, they offer services not provided by mainstream financial institutions such as small loans at below-market rates to individuals who might not otherwise qualify for bank loans. CDCUs rely heavily on banks, foundations, and other investors for deposits to support their work.

Community Development Loan Fund (CDLF)

A private, non-profit organization that channels private investment capital to community-based organizations and projects. It may operate independently or as part of a community-based organization. Lenders to the fund may have some control over the term and rate of interest on their loans, which are generally more flexible that conventional financing, as well as the usage of their funds. CDLFs can also provide borrowers with technical assistance to reduce the chance of losses on higher risk loans. Since CDLFs are not chartered or licensed, they have flexibility in their organizational structure, although they may be subject to state laws and regulations. In most cases, they are incorporated as 501(c)(3) non-profits.

Community Land Trust (CLT)

A private non-profit corporation that acquires and holds land in perpetuity to be developed for specific community uses, primarily affordable housing. CLTs control the terms of sale of all properties and improvements on the land to maintain long-term interests, while allowing leaseholders to retain general ownership rights of their properties. CLTs are run by local residents, including leaseholders on CLT-owned land.

Community Reinvestment Act (12 U.S.C. 2901) CRA

Federal law passed in 1977 to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound banking operations. The CRA requires that each insured depository institution's record in helping meet the credit needs of its entire community be evaluated periodically. That record is taken into account in considering an institution's application for deposit facilities, including mergers and acquisitions.

Community-Based Organization

A non-profit organization that works to serve the disadvantaged in the community in which it is based. Services provided are varied and can include health, education, housing, and employment training.

Comptroller of the Currency (OCC)

A chief regulator of national banks, appointed by the President for a five-year term, with Senate confirmation. The Office of the Comptroller of the Currency, the supervisory agency for national chartered banks, is oldest federal regulator of financial institutions. It is also an officer of the Treasury Department responsible for chartering national banks and has primary supervisory authority over them. All national banks are required to be members of the Federal Reserve System and are insured by the Federal Deposit Insurance Corporation. See also Federal Deposit Insurance Corporation, Federal Financial Institutions Examination Council, Federal Reserve System.

Consolidator

Consolidator provides electronic bill payment of presentment. Internet banking ASPs and financial websites contract with them to allow all their customers to receive and pay bills online.

Construction

This industry includes general building, heavy construction, and special trade contractors.

Construction Expenditures

The total amount of new construction spending expressed as percentage change from the previous month. The total expenditure has two components: residential expenditures and nonresidential expenditures.

Construction Loan

A short-term real estate loan to finance building costs. The funds are disbursed as needed or in accordance with a prearranged plan, and the money is repaid on completion of the project, usually from the proceeds of a mortgage loan. The rate is normally higher than prime, and there is usually an origination fee. The effective yield on these loans tends to be high, and the lender has a security interest in the real property.

Consumer Advisory Council

A statutory body established by Congress in 1976. The Council, with 30 members who represent a broad range of consumer and creditor interests, advises the Board on the exercise of its responsibilities under the Consumer Credit Protection Act and on other matters on which the Board seeks its advice. See also Consumer Credit Protection Act of 1988.

Consumer Credit

Loan extended to individuals. Consumer credit includes secured and unsecured installment and revolving credit. Also call personal loans. See also Personal Loan.

Consumer Credit Protection Act of 1988

Landmark federal legislation establishing rules of disclosure that lenders must observe in dealings with borrowers. The act stipulates that consumers be told annual percentage rates, potential total cost, and any special loan terms. The act, enforced by the Federal Reserve Bank, is also known as the Truth in Lending Act. See also Finance Charge, Truth in Lending Act.

Consumer Installment Credit

The net change in billions from the previous month in consumer installment credit outstanding. The peaks and troughs in business and consumer credit historically precede business cycle extremes.

Consumer Leasing Act

Legislation passed in 1976 requiring lessors to disclose specified information about payment, trade-in allowance, and estimated value of property at the end of the lease.

Consumer Price Index (CPI)

A measurement of the change in consumer prices, as determined by a monthly survey of the U.S. Bureau of Labor Statistics. Many pension and employment contracts are tied to changes in consumer prices, as protection against inflation and reducing purchasing power. Among the CPI components are the costs of housing, food, transportation and electricity. Also known as the cost-of-living index.

Contract

An agreement by which right or acts are exchanged for lawful consideration. To be valid, it must be entered into by competent parties, must cover a legal and moral transaction, must possess mutuality, and must represent a meeting of minds.

Cooperative

A form of housing in which residents form a corporation for the purpose of owning and managing the property collectively. Membership in the cooperative gives them the right to occupy a unit and take part in the management and operation of the building. Residents own shares in the corporation proportional to their share of the mortgage, rather than owning individual units. If a resident leaves, the new resident purchases those shares and assumes responsibility for part of the mortgage.

Correspondent Bank

A bank that accepts deposits of and performs banking services for other depository institutions.

Cost-burdened Homeowners and Renters

Households are paying more than 30 percent of their monthly gross income for housing.

Cost-of-Living Adjustment (COLA)

Adjustment of wages designed to offset changes in the cost of living, usually as measured by the Consumer Price Index. COLAs are key bargaining issues in labor contracts and are politically sensitive elements of social security payments and federal pension because they affect million of people.

Coupon

Interest rate payment on bond.

Credit

Any money lent through loans and bonds or money owed for the payment of goods and services.

Credit Card

A plastic card authorizing the account holder to charge purchases against a preapproved credit line. Credit cards are issued by banks, thrift institutions, retailers, gasoline companies, and other credit grantors. Many card issuers change an annual fee to cover account servicing costs. See also Debit Card, Magnetic Stripe.

Credit History

A record of how a person has borrowed and repaid debts.

Credit Rating

A formal evaluation of an individual's or company's credit history and capability of repaying obligations. Any number of firms investigate, analyze, and maintain records on the credit responsibility of individuals and businesses. The credit rating is based on the number of outstanding debts and whether debts have been repaid in a timely manner in the past.

Credit Scoring System

A statistical system used to determine whether or not to grant credit by assigning numerical scores to various characteristics related to creditworthiness.

Credit Union

A not-for-profit financial institutions typically formed by employees of a company, a labor union, or a religious group and operated as a cooperative. Credit Unions may offer a full range of financial services and pay higher rates on deposits and charge lower rates on loans than commercial banks. Federally chartered credit unions are regulated and insured by the National Credit Union Administration. See also National Credit Union Administration.

Creditor

A party that extends credit, such as a trade supplier, a bank lender, or a bondholder.

Creditworthiness

A creditor's measure of a consumer's past and future ability and willingness to repay debts. See also Credit; Credit History; Credit Rating.

CRSO

See Customer Relations and Support Office

Currency

The medium of exchange in a given country consisting generally of bills (paper) and coins that is issued by the government and designated as legal tender for the payment of all obligations.

Customer Relations and Support Office (CRSO)

It oversaw and provided direction for a Federal Reserve study of 10 community banks nationwide. It presents information about their operations, their customers, and the challenges they face in offering their products in a competitive marketplace.

Cyberbanking

Also referred to as electronic banking, remote banking or online banking. Cyber is a derivative of a term coined by D. N. Michael and First Union National Bank around 1961 to refer to the use of computers to control manufacturing operations. See also Electronic Banking; Home Banking; Remote Banking.

CyberCash

A commercially sponsored payments system by which a user digitally purchases cash credits, stores them in their computer, and then spends them when making electronic purchases over the Internet. Most merchants accepting digital cash use it an alternative to other forms of payment for somewhat higher price purchases. See also Digital Cash.

Cyclical Stock

Securities such as those in automobile manufacturing plants and real estate ventures that rise quickly when the economy is on the upswing and fall when the economy drops. Noncyclical stocks include those in companies that product items people need no matter what the economy is doing, such as food and drugs.

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Daylight Overdraft

A negative balance created in an account when payments made during business hours exceed incoming funds actually received. The term also refers to an overdraft in a bank's reserve account at the Federal Reserve during business hours.

De Novo

A newly chartered bank, as opposed to a bank acquired through a purchase acquisition or a newly opened branch banking office. Banking expansion can take place through chartering of new banks and approval of new branch office by state banking department, or through the acquisition of existing bank (and banking offices).

Debit

A bank account entry subtracting a specific amount of money; the opposite of a credit.

Debit Card

A plastic card giving consumers access to their funds electronically. Debit cards act like checks when paying for goods and services or withdrawing cash at automated teller machines. See also Automated Teller Machine; Credit Card; Magnetic Stripe Card.

Debt

Money, goods, or services that one party is obligated to pay to another in accordance with an expressed or implied agreement. Debt may or may not be secured; General name for bonds, notes, mortgages, and other forms of paper evidencing amounts owed and payable on specified dates or on demand. See also Mortgage.

Debt Collection Improvement Act of 1996

Federal law within the Omnibus Consolidated Rescissions and Appropriations Act of 1996 (Public Law 104-134) that aims to enhance debt collection, as well as promote the use of electronic funds transfer (EFT) in the delivery of federal payments.

Default

Failure of a debtor to make timely payments of interest and principal as they come due or to meet some other provision of a bond indenture. In the even of default, bondholders may make claims against the assets of the issuer in order to recoup their principal. See also Debt, Interest, Principal.

Definitive Securities

Securities that are recorded on engraved paper certificates payable to the bearers or to specific, registered owners. See also Book-entry Securities.

Deflation

A drop in general price levels, usually caused by increased demand for money that isn't offset by an increased money supply, or a drop in the money supply that isn't offset by a drop in the demand for money.

Demand Deposit

An account balance which, without prior notice to the bank, can be drawn on by check, cash withdrawal from an automatic teller machine, or by transfer to other accounts using the telephone or home computers. Demand deposits are the largest component of the U.S. money supply. And the principal medium through which the Federal Reserve implements monetary supply.

Department of Housing and Urban Development HUD

A federal agency that funds numerous programs designed to promote economic development and affordable housing. Among the programs offered that can be used in tandem with private money include home mortgage insurance and Community Development Block Grants. See also Community Development Block Grants.

Department of Veterans Affairs

A federal agency that provides, among other services, guaranteed home loans for veterans. The terms and rates of such loans are usually more favorable that those of conventional home loans.

Deposit Ceiling Rates of Interest

Maximum interest rates that can be paid on savings and time deposits at federally insured commercial banks, mutual savings banks, savings and loan associations, and credit unions. Ceilings on credit union deposits are established by the National Credit Union Administration. Ceilings on deposits held by the other depository institutions are established by the Depository Institutions Deregulation Committee (DIDC). Under current law, deposit interest rate ceilings are being phased out over a six-year period, ending in 1986 under the oversight of the DIDC. See also National Credit Union Administration.

Depository Institutions Deregulation and Monetary Control Act of 1980 DIDMCA

Among its major provisions, this Act applied uniform reserve requirements to all depository institutions with certain types of accounts and required reports from these depository institutions. It also extended access to the Federal Reserve discount window and to other Federal Reserve services in step with the implementation of a fee schedule. See also Discount Window, Reserve Requirements.

Depository Institutions Deregulation Committee DIDC

The Committee responsible for the orderly phase-out over a six-year period of interest rate ceilings on time and savings accounts at depository institutions. Voting members of the DIDC are the Secretary of the Treasury and the Chairmen of the Federal Reserve Board, Federal Deposit Insurance Corporation, Federal Home Loan Bank Board, and National Credit Union Administration Board. The Comptroller of the Currency serves as a nonvoting member. See also Deregulation.

Depreciation

The amount by which an asset's value falls in a given period.

Deregulation

Stopping or cutting down government control over a particular industry in an effort to free the market and promote competition.

Derivative

A financial contract whose value is determined from publicly trade securities, interest, currency exchange rates, or market indexes.

Devaluation

Lowering of the value of a country's currency relative to gold and/or the currencies on other nations. Devaluation can also result from a rise in value of other currencies relative to currency of a particular country. See also Currency.

DigiCash

The largest electronic cash scheme based on electronic coins. It uses blind signature to protect the anonymity of the buyer. See also Digital Cash.

Digital Cash

Money/monetary equivalents that can be transmitted electronically, largely outside the established payments system of banks, checks, and paper currency overseen by the Federal Reserve.

Digital Signature

The electronic equivalent of a person's unique writing of their own name, usually performed today using public key cryptography. To create a digital signature, a hash function is performed on a message to create a unique message digest. The message digest is then encrypted using the sender's private key; the recipient decrypts the digest using the sender's public key. The recipient uses the public key of the sender to verify the authenticity of the sender, who should be the only one possessing that private key.

Digital Wallet

Encryption software that conducts secure transactions online in a fashion that resembles using a physical wallet. A wallet can hold a user's payment information, a digital certificate to identify the user, and shipping information to speed transactions. The consumer benefits because his or her information is encrypted against piracy and because some wallets will automatically input shipping information at the merchant's site and will give the consumer the option of paying by digital cash or check. Merchants benefit by receiving protection against fraud.

Direct Deposit

An automatic deposit of wages or benefits (such as payroll payments) into a consumer's bank account. Direct Deposit payments are processed through the Federal Reserve's Automated Clearing House. See Also Automated Clearing House, Automatic Deposit.

Discount Rate

Interest rate that the Federal Reserve charges member banks for loans, using government securities or eligible paper as collateral. This provides a floor on interest rates, since banks set their loan rates a notch above the discount rate; Interest rate use in determining the present value of future cash flows. See also Capitalization Rate, Federal Funds Rate, Prime Rate.

Discount Window

A place in the Federal Reserve where banks go to borrow money at the Discount rate. Borrowing from the Fed is a privilege, not a right, and banks are discouraged from using the privilege except when they are short of reserves. See also Discount Rate.

Discount Yield

A yield obtained by dividing a security's discount by its face value, multiplying that number by the approximate number of days in the year (360), divided by the number of days left to maturity. The figure provides the interest on a security's face value instead of on the amount of money invested. discount / face amount x 360 / days to maturity

Dividends

The portions of a corporation's profits that the firm pays out each period to shareholders. Also called distributed profits.

Domestic Trading Desk (the Desk)

Trading desk, or Securities Department, at the New York Federal Reserve Bank, which is the operating arm of the Federal Open Market Committee. The Desk executes all transactions undertaken by the Federal Reserve System in the money market or the government securities market, serves as the Treasury Department's eyes and ears in these and related markets, and encompass a foreign desk which conducts transactions in the Foreign Exchange Market. See also Federal Open Market Committee.

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Easing

Federal Reserve action to increase the amount of credit available to the public through the banking system; undertaken when the economy needs to be stimulated.

EBPP

See Electronic Bill Payment & Presentment

Econometric Model

An empirical method of economic forecasting that uses an equation based on statistical relationship among economic variables, such as housing starts and equipment purchases.

Econometrics

Use of computer analysis and modeling techniques to describe in mathematical terms the relationship between key economic forces such as labor, capital, interest rates, and government policies, then test the effect of changes in economic scenarios. For instance, an econometric model might show the relationship of housing starts and interest rates.

Economic Growth Rate

Rate of change in the Gross National Product, as expressed in an annual percentage. If adjusted for inflation, it is called the real economic growth rate. Two consecutive quarterly drops in the growth rate mean recession, and two consecutive advances in the growth rate reflect an expanding economic.

Economic Indicators

Key statistics showing the direction of the economy. Among them are the unemployment rate, inflation rate, utilization rate, and balance of trade. See also Leading Indicators.

Economies of Scale

The tendency for certain classes of costs to decrease as a institution's size or volume of business increases.

Edge Act Corporation

An organization chartered by the Federal Reserve to engage in international banking operations. The Board acts upon applications by U.S. and foreign banking organizations to establish Edge corporations. It also examines Edge corporations and their subsidiaries. The Edge corporation gets its name from Senator Walter Edge of New Jersey, the sponsor of the original legislation to permit formation of such organizations.

Electronic Banking

A form of banking where funds are transferred through an exchange of electronic signals between financial institution, rather than exchange of cash, checks, or other negotiable instruments. The ownership of funds and transfers of funds between financial institution are recorded on computer systems connected by telephone lines. Customer identification is by access code, such as a password or Personal Identification Number (PIN), instead of a signature on a check or other physical document. See also Cyber Banking, Home Banking, Remote Banking.

Electronic Benefit Transfer

A system for electronic payment of government-sponsored benefit programs, using plastic cards and available point-of-sale (POS) technology. See also Magnetic Stripe Card.

Electronic Bill Payment & Presentment EBPP

Internet based billing service allowing consumers to view and pay credit card and other retail bills online from a personal computer. Consumers view their billing information by logging onto their bank's Internet website, decide what bills to pay, and authorize payment by electronic mail. Funds are deducted electronically from the consumer's checking account and cleared through the Federal Reserve's Automated Clearing House network.

Electronic Cash E-Cash

A system by which consumers can transfer the digital equivalent of dollars and cents (also referred to as digital cash) over the Internet or other online connections to pay for goods or information. Typically, this is associated with low transaction values or is a method used between individuals when the seller does not accept credit cards. See Also Micropayments.

Electronic Check

Electronic version of a paper check, including date, payee name, payment amount, and signature. Electronic checks (e-checks), currently being tested by several large banks, are meant for paying bills, transferring funds, or any purpose where a paper check is used today. Checks bear a digital signature security code proving payment was authorized by the account holder. See also Digital Signature.

Electronic Fund Transfer Systems EFTS

A variety of systems and technologies for transferring funds (money) electronically rather than by check. Includes Fedwire, Bankwire, automated clearinghouses (ACHs), and other automated systems. See also Automated Clearing House, Bankwire, Fedwire.

Electronic Money

Monetary value measured in currency units stored in electronic form on an electronic device in the consumer's possession. This electronic value can be purchased and held on the device until reduced through purchase or transfer.

Electronic Purse

A specific type of smart-card. A chip in the card provides multiple payment options such as debit, credit, and direct payment from a stored balance. The electronic purse allows for transactions with different merchants in many locations.

Electronic Transfer Account ETA

An ETA is a low-cost account which is made available by participating Federally insured financial institutions to individuals who receive Federal benefit, wage, salary, or retirement payments. The account allows recipients to receive Federal payments electronically in accordance with the Electronic Funds Transfer (EFT) provision of the Debt Collection Improvement Act of 1996 (DCIA). The DCIA requires that Federal payments, except for tax refunds and except where waived by the Secretary of the Treasury, be made electronically after January 1, 1999.

Enterprise Zone

An economically depressed area that has been targeted for revitalization by a city or state through tax and other incentives given to companies that locate or expand their operations within the zone.

Entitlement Community

A city or urban community with a population of 50,000 or more which, because of its size, receives Community Development Block Grant funds directly from the federal government. Non-entitlement communities receive CDBG funds through the state office of economic development. See also Community Development Block Grant.

Equity Grant

A grant generally provided by a government agency, which reduces up-front acquisition costs to a housing or commercial development project. The grant can take a variety of forms, such as a direct cash contribution, or the contribution or reduced price sale of publicly owned land or property.

Eurodollars

Deposits denominated in U.S. dollars at banks and other financial institutions outside the United States. Although this name originated because of the large amounts of such deposits held at banks in Western Europe, similar deposits in other parts of the world are also called Eurodollars

Exchange Rate

Price at which one country's currency can be converted into another's. The exchange rate between the U.S. dollar and the British pound is different from the rate between the dollar and the West German mark.

Expedited Funds Availability Act EFAA

Federal law enacted by Congress in 1987 limiting holds on checks deposited into a bank account, and requiring banks and other depository financial institutions to follow a uniform funds availability schedule in processing checks or drafts deposited into an account. Under the EFAA, the first $100 of a check is to be available for use at the opening of business the day after the deposit is made; the remaining funds on the second day after the deposit if payable by a local bank, and within five days if drawn on more distant banks.

Expiring Use Restrictions

The contractual right which owners of low- and moderate-in