Bank failures and rescues/Glossary

(For definitions not shown below, see the economics glossary [1])

• Agency cost
• Arbitrage [r]: transactions to take advantage of a price differences of a product in different markets by buying where it is cheap and selling where it is dear. The possibility of arbitrage often prevents the occurrence of price differences. ^[e]
• Basel I & Basel II [r]: international banking regulations put forth by the Basel Committee on Bank Supervision of the Bank for International Settlements requiring banks' minimum capital adequacy ratios to be related to the riskiness of their loans. ^[e]
• Capital (banking) [r]: A bank's assets minus its liabilities. ^[e]
• Capital adequacy ratio [r]: The ratio of a bank's capital to its risk weighted credit exposures. May be defined in terms of tier 1 (core) or tier 2 capital. ^[e]
• Central Bank [r]: A government agency that is responsible for monetary policy and the support of the banking system (for example the Federal Reserve Board and the Bank of England). Usually responsible for controlling a country's monetary policy and preserving the value of its currency. ^[e]
• Contagion (banking) [r]: the spread of a run, loss or insolvency from one bank to another, or the spread of a banking crisis from one country to another. ^[e]
• Credit risk [r]: The risk that the value of a loan-based security will fall as a result of defaults on the part of borrowers (as distinct from interest rate risks and exchange rate risks). ^[e]
• Debt_instrument [r]: A formal obligation assumed by a borrower to replay the lender in accordance with the terms of an agreement, including bonds, debentures, promissory notes, leases and mortgages. ^[e]
• Derivative [r]: An asset whose value depends upon the expected value of another asset. ^[e]
• Financial asset [r]: An asset that derives it value from a legal claim - including stocks, bonds and loans. ^[e]
• Financial_Intermediary [r]: A go-between organisation that obtains finance from investors (or savers) and lends it to corporations (or other borrowers). Financial intermediaries include banks, building societies (or savings and loans associations) , life insurance companies and credit unions. ^[e]
• Financial_regulator [r]: The United States Securities and Exchange Commission gives as its mission "to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation". Financial regulators in other countries have similar responsibilities. ^[e]
• Gearing: see Leverage
• Herding (banking) [r]: A tendency to base decisions upon the actions of others - on the part of bankers, depositors or investors see also Panic (banking). ^[e]
• Insolvency [r]: Inability to meet a debt - or other financial - obligation. ^[e]
• Interbank market [r]: a market in which a group of banks lend to each other (for example, see LIBOR). ^[e]
• Interest rate risk [r]: The risk that the value of a fixed-rate security or loan will fall as a result of a rise in interest rates. ^[e]
• Lender of last resort [r]: An institution, that is prepared to lend money to any solvent bank that encounters a serious liquidity risk, or a threatened bank run. (The term has sometimes also been applied to financial assistance to avert insolvency that could occur for other reasons, or to financial assistance to governments). ^[e]
• Leverage [r]: (i) The use of borrowing to increase the amount of money that is available for investment or consumption. (ii) A proportional measure of indebtedness, such as the ratio of a company's debt to its shareholders' equity (the same as British "gearing"), or the ratio of the indebtedness of a household to the net value of its assets (ie net of its debts). ^[e]
• LIBOR [r]: Add brief definition or description
• Liquidity [r]: Add brief definition or description
• Liquidity risk [r]: Add brief definition or description
• Market risk [r]: Add brief definition or description
• Money market [r]: Add brief definition or description
• Moral hazard [r]: Add brief definition or description
• Option [r]: Add brief definition or description
• Portfolio insurance [r]: Add brief definition or description
• Purchase and assumption [r]: Add brief definition or description
• Prime rate [r]: Add brief definition or description
• Run (banking) [r]: Add brief definition or description
• Securitisation [r]: Add brief definition or description
• Systemic failure (finance) [r]: Add brief definition or description
• Tier 1 capital [r]: Add brief definition or description
• Warrant [r]: Add brief definition or description