Definition of Bank

Bank

Money in a bank cheque account, the difference between receipts and payments.

ABM (automated banking machine)

A bank machine, sometimes referred to as an automated teller machine (ATM).

Agency bank

A form of organization commonly used by foreign banks to enter the U.S. market. An agency
bank cannot accept deposits or extend loans in its own name; it acts as agent for the parent bank.

BAN (Bank anticipation notes)

Notes issued by states and municipalities to obtain interim financing for
projects that will eventually be funded long term through the sale of a bond issue.

Bank collection float

The time that elapses between when a check is deposited into a bank account and when the funds are available to the depositor, during which period the bank is collecting payment from the payer's bank.

Bank discount basis

A convention used for quoting bids and offers for treasury bills in terms of annualized
yield , based on a 360-day year.

Bank draft

A draft addressed to a bank.

bank draft

A guaranteed form of payment which is issued in amounts over $5,000.

Bank for International Settlements (BIS)

An international bank headquartered in Basel, Switzerland, which
serves as a forum for monetary cooperation among several European central banks, the bank of Japan, and the
U.S. Federal Reserve System. Founded in 1930 to handle the German payment of World War I reparations, it
now monitors and collects data on international banking activity and promulgates rules concerning
international bank regulation.

Bank line

Line of credit granted by a bank to a customer.

Bank overdraft

Money owed to the bank in a cheque account where payments exceed receipts.

Bank reconciliation

The process of taking the balances from the bank statement and the general ledger and making adjustments so that they agree.

Bank reconciliation

A comparison between the cash position recorded on a company’s
books and the position noted on the records of its bank, usually resulting in some
changes to the book balance to account for transactions that are recorded on the
bank’s records but not the company’s.

Bank wire

A computer message system linking major banks. It is used not for effecting payments, but as a
mechanism to advise the receiving bank of some action that has occurred, e.g. the payment by a customer of
funds into that bank's account.

Banker's acceptance

A short-term credit investment created by a non-financial firm and guaranteed by a
bank as to payment. Acceptances are traded at discounts from face value in the secondary market. These
instruments have been a popular investment for money market funds. They are commonly used in
international transactions.

Bankers Acceptances

A bill of exchange, or draft, drawn by the borrower for payment on a specified date, and accepted by a chartered bank. Upon acceptance, the bill becomes, in effect, a postdated certified cheque.

Bankruptcy

State of being unable to pay debts. Thus, the ownership of the firm's assets is transferred from
the stockholders to the bondholders.

bankruptcy

The reorganization or liquidation of a firm that cannot pay its debts.

Bankruptcy cost view

The argument that expected indirect and direct bankruptcy costs offset the other
benefits from leverage so that the optimal amount of leverage is less than 100% debt finaning.

Bankruptcy risk

The risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk.

Bankruptcy view

The argument that expected bankruptcy costs preclude firms from being financed entirely
with debt.

Central Bank

A public agency responsible for regulating and controlling an economy's monetary and financial institutions. It is the sole money-issuing authority.

Clearing House Interbank Payments System (CHIPS)

An international wire transfer system for high-value
payments operated by a group of major banks.

Commercial Bank

A privately owned, profit-seeking firm that accepts deposits and makes loans.

concentration banking

System whereby customers make payments to a regional collection center which transfers funds to
a principal bank.

Consortium banks

A merchant banking subsidiary set up by several banks that may or may not be of the
same nationality. Consortium banks are common in the Euromarket and are active in loan syndication.

Eligible bankers' acceptances

In the BA market, an acceptance may be referred to as eligible because it is
acceptable by the Fed as collateral at the discount window and/or because the accepting bank can sell it
without incurring a reserve requirement.

Eurobank

A bank that regularly accepts foreign currency denominated deposits and makes foreign currency loans.

Export-Import Bank (Ex-Im Bank)

The U.S. federal government agency that extends trade credits to U.S.
companies to facilitate the financing of U.S. exports.

Federal Financing Bank

A federal institution that lends to a wide array of federal credit agencies funds it
obtains by borrowing from the U.S. Treasury.

Federal Home Loan Banks

The institutions that regulate and lend to savings and loan associations. The
Federal Home Loan banks play a role analogous to that played by the Federal Reserve banks vis-à-vis
member commercial banks.

Federal Reserve Banks

The twelve district banks in the Federal Reserve System.

Foreign banking market

That portion of domestic bank loans supplied to foreigners for use abroad.

Fractional Reserve Banking

A banking system in which banks hold only a fraction of their outstanding deposits in cash or on deposit with the central bank.

International Bank for Reconstruction and Development - IBRD or World Bank

International bank for Reconstruction and Development makes loans at nearly conventional terms to countries for projects of high
economic priority.

International Banking Facility (IBF)

International banking Facility. A branch that an American bank
establishes in the United States to do Eurocurrency business.

Investment bank

Financial intermediaries who perform a variety of services, including aiding in the sale of
securities, facilitating mergers and other corporate reorganizations, acting as brokers to both individual and
institutional clients, and trading for their own accounts. Underwriters.

Investment Banker

Middleman between a corporation issuing new securities and the public. The middleman buys the securities issue outright and then resells it to customers. Also called an underwriter.

Legal bankruptcy

A legal proceeding for liquidating or reorganizing a business.

Merchant bank

A British term for a bank that specializes not in lending out its own funds, but in providing
various financial services such as accepting bills arising out of trade, underwriting new issues, and providing
advice on acquisitions, mergers, foreign exchange, portfolio management, etc.

Merchant Bank

A financial institution that engages in investment banking functions, such as advising clients in mergers and acquisitions, underwriting securities and taking debt or equity positions.

Money center banks

banks that raise most of their funds from the domestic and international money markets, relying less on depositors for funds.

PIBOR (Paris Interbank Offer Rate)

The deposit rate on interbank transactions in the Eurocurrency market
quoted in Paris.

Prepackaged bankruptcy

A bankruptcy in which a debtor and its creditors pre-negotiate a plan or
reorganization and then file it along with the bankruptcy petition.

Society for Worldwide Interbank Financial Telecommunications (SWIFT)

A dedicated computer network to support funds transfer messages internationally between over 900 member banks worldwide.

Wholesale mortgage banking

The purchasing of loans originated by others, with the servicing rights
released to the buyer.

World Bank

A multilateral development finance agency created by the 1944 Bretton Woods, New
Hampshire negotiations. It makes loans to developing countries for social overhead capital projects, which are
guaranteed by the recipient country. See: International bank for Reconstruction and Development.

World Bank

The International bank for Reconstruction and Development, an international organization that provides long-term loans to developing countries to improve their infrastructure.

Absolute priority

Rule in bankruptcy proceedings whereby senior creditors are required to be paid in full
before junior creditors receive any payment.

acid test ratio (also called the quick ratio)

The sum of cash, accounts receivable, and short-term marketable
investments (if any) is divided by
total current liabilities to compute this ratio. Suppose that the short-term
creditors were to pounce on a business and not agree to roll over the
debts owed to them by the business. In this rather extreme scenario, the
acid test ratio reveals whether its cash and near-cash assets are enough
to pay its short-term current liabilities. This ratio is an extreme test that
is not likely to be imposed on a business unless it is in financial straits.
This ratio is quite relevant when a business is in a liquidation situation
or bankruptcy proceedings.

American Depositary Receipts (ADRs)

Certificates issued by a U.S. depositary bank, representing foreign
shares held by the bank, usually by a branch or correspondent in the country of issue. One ADR may
represent a portion of a foreign share, one share or a bundle of shares of a foreign corporation. If the ADR's
are "sponsored," the corporation provides financial information and other assistance to the bank and may
subsidize the administration of the ADRs. "Unsponsored" ADRs do not receive such assistance. ADRs carry
the same currency, political and economic risks as the underlying foreign share; the prices of the two, adjusted for the SDR/ordinary ratio, are kept essentially identical by arbitrage. American depositary shares(ADSs) are
a similar form of certification.

Assignment

This is the legal transfer on one person's interest in an insurance policy to another person or entity, such as to a bank to qualify for a loan

Automated Clearing House (ACH)

A collection of 32 regional electronic interbank networks used to
process transactions electronically with a guaranteed one-day bank collection float.

Automated Clearing House (ACH)

A banking clearinghouse that processes direct
deposit transfers.

Automatic stay

The restricting of liability holders from collection efforts of collateral seizure, which is
automatically imposed when a firm files for bankruptcy under Chapter 11.

Back-to-back financing

An intercompany loan channeled through a bank.

Baker Plan

A plan by U.S. Treasury Secretary James Baker under which 15 principal middle-income debtor
countries (the Baker 15) would undertake growth-oriented structural reforms, to be supported by increased
financing from the World bank and continued lending from commercial banks.

Bane

In the words of Warren Buffet, Bill Bane Sr., is, "a great American and one of the last real traders
around. I like to call him 'Salvo.'" His wife, Carol, is a huge NASCAR fan, and in her own words "delights in
pulling the legs off central bankers." Cooper Bane, son number two, is a thriving artiste who specializes in
making art that is much better than the stuff most folks are doing. Jackson, son number three, is a world
renowned master chef and plans on opening a restaurant. Bill Bane Jr., son number one, plans on giving Mr.
Monroe Trout a run for his money. [Bill Bane, Jr. helped Professor Harvey put the hypertextual glossary
together while an MBA student at Duke University.]

Book

A banker or trader's positions.

Book-entry securities

The Treasury and federal agencies are moving to a book-entry system in which securities are not represented by engraved pieces of paper but are maintained in computerized records at the
Fed in the names of member banks, which in turn keep records of the securities they own as well as those they
are holding for customers. In the case of other securities where a book-entry has developed, engraved
securities do exist somewhere in quite a few cases. These securities do not move from holder to holder but are
usually kept in a central clearinghouse or by another agent.

Bretton Woods

Site of a 1944 international monetary conference at which the postwar fixed exchange rate system was structured and the International Monetary Fund (IMF) and World bank were created.

British clearers

The large clearing banks that dominate deposit taking and short-term lending in the domestic
sterling market.

Bullet loan

A bank term loan that calls for no amortization.

Call money rate

Also called the broker loan rate , the interest rate that banks charge brokers to finance
margin loans to investors. The broker charges the investor the call money rate plus a service charge.

Canadian agencies

Agency banks established by Canadian banks in the U.S.

Canadian Deposit Insurance Corporation

Better known as CDIC, this is an organization which insures qualifying deposits and GICs at savings institutions, mainly banks and trust companys, which belong to the CDIC for amounts up to $60,000 and for terms of up to five years. Many types of deposits are not insured, such as mortgage-backed deposits, annuities of duration of more than five years, and mutual funds.

Capital market imperfections view

The view that issuing debt is generally valuable but that the firm's
optimal choice of capital structure is a dynamic process that involves the other views of capital structure (net
corporate/personal tax, agency cost, bankruptcy cost, and pecking order), which result from considerations of
asymmetric information, asymmetric taxes, and transaction costs.

Cash

The value of assets that can be converted into cash immediately, as reported by a company. Usually
includes bank accounts and marketable securities, such as government bonds and banker's Acceptances. Cash
equivalents on balance sheets include securities (e.g., notes) that mature within 90 days.

Cash

Currency, coin, and funds on deposit that are available for immediate withdrawal without
restriction. Money orders, certified checks, cashier's checks, personal checks, and bank drafts
are also considered cash.

Cash and equivalents

The value of assets that can be converted into cash immediately, as reported by a
company. Usually includes bank accounts and marketable securities, such as government bonds and banker's
Acceptances. Cash equivalents on balance sheets include securities (e.g., notes) that mature within 90 days.

Cash-equivalent items

Temporary investments of currently excess cash in short-term, high-quality
investment media such as treasury bills and banker's Acceptances.

Cash Ratio

Ratio of cash and cash equivalents to liabilities; in the case of a bank, the ratio of cash to total deposit liabilities.

Certificate of deposit (CD)

Also called a time deposit, this is a certificate issued by a bank or thrift that
indicates a specified sum of money has been deposited. A CD bears a maturity date and a specified interest
rate, and can be issued in any denomination. The duration can be up to five years.

Certificate of Deposit (CD)

A bank deposit that cannot be withdrawn for a specified period of time. See also term deposit.

Chinese wall

Communication barrier between financiers (investment bankers) and traders. This barrier is
erected to prevent the sharing of inside information that bankers are likely to have.

Clearing House Automated Payments System (CHAPS)

A computerized clearing system for sterling funds
that began operations in 1984. It includes 14 member banks, nearly 450 participating banks, and is one of the
clearing companies within the structure of the Association for Payment Clearing Services (APACS).

Comanger

A bank that ranks just below a lead manager in a syndicated Eurocredit or international bond
issue. Comanagers may assist the lead manger bank in the pricing and issue of the instrument.

Commercial risk

The risk that a foreign debtor will be unable to pay its debts because of business events,
such as bankruptcy.

Commitment fee

A fee paid to a commercial bank in return for its legal commitment to lend funds that have
not yet been advanced.

Compensating balance

An excess balance that is left in a bank to provide indirect compensation for loans
extended or services provided.

Conditional sales contracts

Similar to equipment trust certificates except that the lender is either the
equipment manufacturer or a bank or finance company to whom the manufacturer has sold the conditional
sales contract.

Corporate processing float

The time that elapses between receipt of payment from a customer and the
depositing of the customer's check in the firm's bank account; the time required to process customer
payments.

costs of financial distress

Costs arising from bankruptcy or distorted business decisions before bankruptcy.

Cramdown

The ability of the bankruptcy court to confirm a plan of reorganization over the objections of
some classes of creditors.

credit

On your bank statement, 'credit' represents funds that you have deposited into your account. The opposite of a credit is a debit.
However, ‘credit’ also means money that you borrow from a financial lender, like a bank. A credit card, for example, is a card that allows you to access funds which you then have to repay.

Credit Crunch

A decline in the ability or willingness of banks to lend.

Creditor Proof Protection

The creditor proof status of such things as life insurance, non-registered life insurance investments, life insurance RRSPs and life insurance RRIFs make these attractive products for high net worth individuals, professionals and business owners who may have creditor concerns. Under most circumstances the creditor proof rules of the different provincial insurance acts take priority over the federal bankruptcy rules.
The provincial insurance acts protect life insurance products which have a family class beneficiary. Family class beneficiaries include the spouse, parent, child or grandchild of the life insured, except in Quebec, where creditor protection rules apply to spouse, ascendants and descendants of the insured. Investments sold by other financial institutions do not offer the same security should the holder go bankrupt. There are also circumstances under which the creditor proof protections do not hold for life insurance products. Federal bankruptcy law disallows the protection for any transfers made within one year of bankruptcy. In addition, should it be found that a person shifted money to an insurance company fund in bad faith for the specific purpose of avoiding creditors, these funds will not be creditor proof.

Current assets

Amounts receivable by the business within a period of 12 months, including bank, debtors, inventory and prepayments.

Current liabilities

Amounts due and payable by the business within a period of 12 months, e.g. bank overdraft, creditors and accruals.

Dealer loan

Overnight, collateralized loan made to a dealer financing his position by borrowing from a
money market bank.

debit card

A card which enables you to directly access your bank account when paying for purchases. So instead of paying in cash or with a credit card, a debit card allows the specified amount of the purchase to be electronically debited, or withdrawn, from your bank account. See Interac Direct Payment for an explanation of the actual procedures that you follow at the point of sale (POS) terminal to use your debit card.

Debt securities

IOUs created through loan-type transactions - commercial paper, bank CDs, bills, bonds, and
other instruments.

Debt swap

A set of transactions (also called a debt-equity swap) in which a firm buys a country's dollar bank
debt at a discount and swaps this debt with the central bank for local currency that it can use to acquire local
equity.

Debtor in possession

A firm that is continuing to operate under Chapter 11 bankruptcy process.

Debtor-in-possession financing

New debt obtained by a firm during the Chapter 11 bankruptcy process.

Delivery versus payment

A transaction in which the buyer's payment for securities is due at the time of
delivery (usually to a bank acting as agent for the buyer) upon receipt of the securities. The payment may be
made by bank wire, check, or direct credit to an account.

Demand Deposit

A bank deposit that can be withdrawn on demand, such as a deposit in a checking account.

Demand line of credit

A bank line of credit that enables a customer to borrow on a daily or on-demand basis.

Deposit Creation

The process whereby the banking system transforms a dollar of reserves into several dollars of money supply.

Deposit Switching

Central bank switching of government deposits between the central bank and commercial banks.

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