Term
| Banking Act of 1933 (Glass-Steagall Act) |
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Definition
| Legislation that barred banks from paying interest on demand deposits, separated commercial banking from investment banking, and restricted the types of assets that banks could own. |
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Term
| Federal Deposit Insurance Corporation (FDIC) |
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Definition
| A government agency that provides federal insurance for depositors of qualified banks and supervises both the bank insurance fund (BIF) and the savings association insurance fund (SAIF). |
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Term
| Depository Institutions Deregulation and Monetary Control Act (DIDMCA) 1980 |
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Definition
| The first major 1980s banking act. It deregulated financial institutions deposit and loan rate ceilings and allowed nonbank institutions to have checking accounts (NOWs) and offer other services in competition with banks. It also extended reserve requirements to all institutions that offered transaction deposits. |
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Term
| Payoff and liquidate policy |
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Definition
| An approach for resolving a bank failure by paying off insured deposits and liquidating the bank’s assets. |
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Term
| Purchase and assumption policy |
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Definition
| A policy of the deposit insurance fund covering bank failures. The insurance fund can sell the assets of the failed institution to another institution that “purchases” the assets and “assumes” the responsibility for repaying the liabilities of the failed institution. |
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Term
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Definition
| Excessive risk taking by insured people or institutions, who realize that they will not bear the full costs of any losses they incur as a result of their risk taking. |
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Term
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Definition
| Policy adopted by federal regulators that the failure of certain financial institutions would have too much of an adverse effect on the economy and so those institutions will not be allowed to fail. |
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Term
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Definition
| Detailed statements of the operating and financial condition of a bank. |
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Term
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Definition
Capital adequacy
Asset quality
Management competence and control
Earnings
Liquidity
Sensitivity to market risk
Rating system used by financial institution examiners. |
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Term
| Regulation Q – deposit ceiling rates |
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Definition
| A historical Federal Reserve regulation that set a maximum interest rate that banks could pay on deposits. All interest rate ceilings on time and savings were phased out on April 1, 1986, by federal law. |
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Term
| Financial Services Modernization Act of 1999 (Gramm-Leach-Bliley Act) |
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Definition
| Legislation that repealed many of the Glass-Steagall restrictions on commercial banking and investment banking. |
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Term
| Truth in Lending – Regulation Z |
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Definition
| Regulation requiring disclosures about (1)the annual percentage rate and (2)the total finance charges and other terms of a loan. |
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Term
| Insurance agencies & Stockholders/debt holders as Police (pp485-486) |
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Definition
The FDIC must “police” the banks b/c depositors of $250,000 or less have no incentive to do so due to the FDIC insuring their deposits.
Stock/debt holders act as “police” for the banks in that they have a vested interest in the banks making good decisions and have the ability to sell their stock if they think the bank is being mismanaged (thereby depressing the value of the stock and alerting the regulators that something is wrong) |
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Term
| Community Reinvestment Act (CRA) |
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Definition
| Legislation created to prevent “redlining,” where a lender draws a hypothetical red line on a map around one part of a community and refuses to make loans in that area. Requires that lenders keep records to show they lend in all areas of their community. |
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Term
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Definition
| consumer-orientated financial institutions that accept deposits from and make loans to consumers (composed of savings institutions and credit unions). |
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Term
| Other real estate owned (OREO) |
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Definition
| Asset holdings of thrifts that usually consist of problem assets, such as repossessed properties. |
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Term
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Definition
| an unsecured, short-term promissory note issued by a large creditworthy business or financial institution. Commercial paper has maturities ranging from a day to 270 days and is usually issued in denominations of $1 million or more. Direct-placed commercial is sold by the seller to the buyer. Terms are negotiable. Dealer-placed commercial paper is sold through dealers with terms similar to those offered on banks’ CDs. |
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Term
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Definition
| the most important participant in the indirect credit markets. Commercial banks issue checkable demand deposits and make loans |
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Term
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Definition
| the most important participant in the direct credit market; firms that specialize in helping businesses and governments sell their new security issues in the primary markets to finance capital expenditures. |
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Term
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Definition
| offerings of new issues of stocks or bonds |
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Term
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Definition
| the primary issue of securities of a type already trading in the secondary market |
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Term
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Definition
| the primary offering of a company that has never before offered a particular type of security to the public, meaning the security is not currently trading in the secondary market; an unseasoned offering. |
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Term
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Definition
| the IB buys the securities at a given price to resell them to the public at a higher price. |
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Term
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Definition
| distribution of registered securities in which the investment banker acts only as the company’s agent and receives a commission for placing the securities with investors. The investment bank does not guarantee a price or that the issue will be sold. |
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Term
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Definition
| the process through which an investment banker investigates a company conducting a security offering to ensure that all the information in the prospectus is true. |
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Term
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Definition
| one who acts as an intermediary between buyers and sellers but does not take title to the securities traded |
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Term
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Definition
| one who is in the security business acting as a principal rather than an agent. The dealer buys for his or her own account and sells to customers from his or her inventory. |
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Term
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Definition
| trading in which an investor can buy securities partly with borrowed money |
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Term
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Definition
| funds provided by institutional investors who provide equity financing to young businesses and play an active role in advising their management |
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Term
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Definition
| individuals who act as informal venture capitalists |
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Term
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Definition
| capital provided to a company at the “idea” stage |
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Term
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Definition
| capital used in initial product development and initial marketing |
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Term
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Definition
| capital provided to initiate manufacturing and sales in a new venture |
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Term
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Definition
| capital used for initial expansion of a company that has already been producing and selling a product |
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Term
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Definition
| capital provided to fund major expansion such as plant expansion, product improvement, or marketing |
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Term
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Definition
| capital provided to a company that expects to go public within a year or so |
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Term
| Closed end investment company |
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Definition
| a nonbank financial institution that sells stock, then diversifies investors’ risk by buying many investments; such funds also provide professional management for investments |
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Term
| Open end investment company (mutual fund) |
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Definition
| the most common type of investment company that stands ready to buy or sell its shares at the current net asset value at any time |
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Term
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Definition
| cluster of related mutual funds that have similar names, related marketing strategies, and allow funds to be transferred easily between themselves. They facilitate asset gathering by mutual fund management companies |
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Term
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Definition
| an investment (mutual) fund that charges a commission when shares in the fund are purchased. |
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Term
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Definition
| fees paid at the time people invest money in a mutual fund |
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Term
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Definition
| an investment fund that does not levy as sales charge when the fund is purchased |
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Term
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Definition
| fees charged when investors take money out of a mutual fund by redeeming shares; the fees can be either redemption fees or contingent deferred sales charges |
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Term
| Contingent deferred sales charge |
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Definition
| fees assessed when people redeem shares in a mutual fund; the fees are usually lower or absent if the money has been in the fund for longer periods of time |
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Term
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Definition
| fees assessed when an investor cashes in (redeems) shares in a mutual fund. |
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Term
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Definition
| annual fees assessed by a mutual fund, over and above its fund management or advisory fees, specifically to pay for the sales and marketing expenses incurred by the fund |
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Term
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Definition
| in mutual funds, the fee paid to the company that manages a fund’s portfolio, usually expressed as a percent of the fund’s annual average net assets. |
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Term
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Definition
| in mutual funds, a fee that may be levied by funds in a mutual fund family when shares are redeemed in one fund and exchanged for shares in another fund in the same mutual fund family |
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Term
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Definition
| a fee levied by some mutual funds on low-balance accounts |
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Term
| Hedge funds & their various strategies |
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Definition
| pools of investment capital that use a combination of market philosophies and analytical techniques to identify, evaluate, and execute trading decisions |
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Term
| Money market mutual funds (MMMF) |
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Definition
| funds that issue shares to customers and use the customer’s money to invest in interest-bearing assets that are very liquid and have very short maturities |
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