MODERN BANKING TERMS
Agent bank: An agent bank or agency bank is a bank that acts on behalf of another bank or group of banks. We commonly refer to a group of banks as a syndicate.The bank may act as agent for a loan made to one borrower by several lenders. We call this type of loan a syndicated loan.
Apex in banking: An apex institution is a second-tier or wholesale organization that channels funding (grants, loans, guarantees) to multiple microfinance institutions (MFIs) in a single country or region. Funding may be provided with or without supporting technical services.
Retail banking: Also known as consumer banking, the typical mass-market banking in which individual customers use local branches of larger commercial banks. Services offered include savings and checking accounts, mortgages, personal loans, debit/credit cards and certificates of deposit (CDs).
Revolving credit: A senior secured loan where the funds are drawn and repaid as needed by the borrower. Revolvers are typically amortising and can usually be called by the borrower with the borrower incurring a fee. Also called revolving credit facility.
Rural banking: Traditionally servicing the financial needs of people living in remote areas of the United States.
Remedial in banking: In some settings, corrective action is used as an encompassing term that includes remedial actions, corrective actions and preventive actions. ‘Remedial Action’ is a term referring to actions taken by businesses to counteract deficiencies or undesirable characteristics in their products.
Remote deposit: The ability in the United States and Canada to deposit a check into a bank account from a remote location, such as an office or home, without having to physically deliver the check to the bank.
Transaction Banking (TB): Defined as the set of instruments and services that a bank offers to trading partners to financially support their reciprocal exchanges of goods (e.g.trade), monetary flows (e.g., cash), or commercial papers (e.g., exchanges).
Traditional banking:The pillars of Traditional Banking (Deposits & Loans) rest upon the foundation of Capital. Friends of Traditional Banking support policies that facilitate the flow of capital into our banking system and which allow market driven returns to be earned on capital that is placed at risk.
Tranche in banking: In structured finance, a tranche is one of a number of related securities offered as part of the same transaction. The word tranche is French for slice, section, series, or portion, and is cognate to English trench (‘ditch’). In the financial sense of the word, each bond is a different slice of the deal’s risk.
e-banking: A method of banking in which the customer conducts transactions electronically via the Internet.
Development bank: Defined as a financial institution concerned with providing all types of financial assistance (medium as well as long term) to business units, in the form of loans, underwriting, investment and guarantee operations, and promotional activities — economic development in general.
Digital banking: The move to online banking where banking services are delivered over the internet. The advantages for banks and customers are providing more convenient and faster banking services.
Dual control in banking: Cash Management has many layers of security to help protect your business from fraud. Dual Control is one layer of security in Cash Management that you may not be aware of. It requires two people in order to complete a single wire transfer or ACH batch transaction.
Customer Due Diligence: Assess the appropriateness and comprehensiveness of the bank’s customer due diligence (CDD) policies, procedures, and processes for obtaining customer information and assess the value of this information in detecting, monitoring, and reporting suspicious activity.
Bank deposits: Consisting of money placed into banking institutions for safekeeping. These deposits are made to deposit accounts such as savings accounts, checking accounts and money market accounts.
Fractional-reserve banking: The practice whereby a bank accepts deposits, makes loans or investments, but is required to hold reserves equal to only a fraction of its deposit liabilities.
Furures banking: In finance, a futures contract (more colloquially, futures) is a standardized forward contract, a legal agreement to buy or sell something at a predetermined price at a specified time in the future.The buyer of a contract is said to be long position holder, and the selling party is said to be short position holder.
Factoring: A financial transaction and a type of debtor finance in which a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount. A business will sometimes factor its receivable assets to meet its present and immediate cash needs.
Float in banking: In economics, float is duplicate money present in the banking system during the time between a deposit being made in the recipient’s account and the money being deducted from the sender’s account. It can be used as investable asset, but makes up the smallest part of the money supply.
Type of bank: A bank is a financial institution licensed to receive deposits and make loans. Banks may also provide financial services, such as wealth management, currency exchange and safe deposit boxes. There are two types of banks: commercial/retail banks and investment banks.
Open Banking Financial Services: The term as part of financial technology that refers to the use of Open APIs that enable third party developers to build applications and services around the financial institution.
Override: An attempt to cancel someone’s decisions by using your authority over them or by gaining more votes than them in an election or contest. [US] The bill now goes to the House where an override vote is expected to fail. An override of the veto appears unlikely.
Oversubscription: A situation in which investors show so much interest in a new issue of a security that demand exceeds supply. Before a new issue, underwriters canvass potential investors, who may or may not book an order to buy a portion the new issue. If investors order more shares than there are shares being issued, the security is said to be oversubscribed. This may affect the price when the security is actually issued.
Overdue: Related loans, bills of exchange, and other obligations remaining unpaid past their due (or maturity) date. All financial arrangements become overdue one business day after their due date.
Wholesale banking: The provision of services by banks to larger customers or organizations such as mortgage brokers, large corporate clients, mid-sized companies, real estate developers and investors, international trade finance businesses, institutional customers (such as pension funds and government entities.
Window dressing: The actions taken or not taken prior to issuing financial statements in order to improve the appearance of the financial statements. An example is a company operates throughout the year with a negative balance in its general ledger cash account.
Waiver: The voluntary relinquishment or surrender of some known right or privilege. Regulatory agencies or governments may issue waivers to exempt companies from certain regulations. For example, a United States law restricted the size of banks, but when banks exceeded these sizes, they obtained waivers.
Wildcat banking: The practices of banks chartered under state law during the periods of non-federally regulated state banking between 1816 and 1863 in the United States, also known as the Free Banking Era.
Bank reserves: The commercial banks’ holdings of deposits in accounts with a central bank (for instance the European Central Bank or the applicable branch bank of the Federal Reserve System, in the latter case including federal funds), plus currency that is physically held in the bank’s vault (“vault cash”).
Bank run: A financial crisis is often associated with a panic or a bank run where investors sell off assets or withdraw money from savings accounts because they fear that the value of those assets will drop if they remain in a financial institution.
Bank Levy by Creditors: A creditor that obtains a court judgment against a debtor may be able to have the court issue a bank levy. The bank levy allows a bank to freeze the account(s) of a debtor until all the sought-after debt is repaid in full. A bank levy can occur due to either unpaid taxes or unpaid debt.
Banking license: The legal prerequisite is for a financial institution that wants to carry on a banking business. Under the laws of most jurisdictions, a business is not permitted to carry words like a bank, insurance, national in their name, unless it holds a corresponding license.
Lifeline accounts: A streamlined checking or savings account designed for low-income customers often referred to as “lifeline accounts.” These accounts will usually have low balance requirements and no monthly fees, and are offered by large banking institutions as a way to offer basic banking services to the broad public.
FR HMDA-LAR: The Home Mortgage Disclosure Act/Loan Application Register. Description: This report takes the form of a register of mortgage and home improvement loan applications and their disposition during a calendar year.
LAF: A liquidity adjustment facility (LAF) is a tool used in monetary policy that allows banks to borrow money through repurchase agreements. Liquidity adjustment facility (LAF) is a monetary policy tool which allows banks to borrow money through repurchase agreements. LAF is used to aid banks in adjusting the day to day mismatches in liquidity. LAF consists of repo and reverse repo operations.
Bank’s liquidity: A company’s liquid assets can easily be converted into cash to meet financial obligations on short notice. A bank’s liquidity is determined by its ability to meet all its anticipated expenses, such as funding loans or making payments on debt, using only liquid assets.
Virtual bank: A financial institution that handles all transactions via the Web, email, mobile check deposit and ATM machines. By not having the overhead of physical branches, people expect a virtual bank to offer higher interest rates on their accounts.
It is most commonly used in reference to retirement plan benefits when an employee accrues non-forfeitable rights over employer-provided stock incentives or employer contributions made to the employee’s qualified retirement plan account or pension plan. It is also commonly used in inheritance law and real estate.
Voucher: A document which can be used as proof that a monetary transaction has occurred between two parties. In business, a payment voucher can be used for a variety of purposes, sometimes taking the place of cash in a transaction, acting as a receipt, or indicating that an invoice has been approved for payment.
Vetting: The thorough and diligent review of a prospective person or project prior to a hiring or investment decision. Vetting most often refers to how an individual or group, such as a board of directors, will “vet out” a prospective CEO or other top management position.
Void: A check that cannot be deposited. In order to void a cheque, all one must do is write “VOID” on the face of the check, preferably in capital letters. Some employers require a void cheque in order for them to set up direct deposit for their employees.
Volatility: The statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility is; the riskier the security goes.