Glossary · 87 terms
Banking & Finance
All banking & finance terms in the EquitiesAmerica.com glossary — plain-English definitions for American investors.
ACH Transfer(ACH payment)
An ACH transfer is an electronic payment processed through the Automated Clearing House network — the batch-processing system overseen by Nacha that handles the vast majority of U.S. direct deposits, bill payments, and business-to-business transactions.
Adjustable-Rate Mortgage(ARM)
An Adjustable-Rate Mortgage (ARM) is a residential mortgage loan on which the interest rate is fixed for an initial period — typically three, five, seven, or ten years — and then adjusts periodically based on a specified market index plus a fixed margin, resulting in monthly payment changes that can increase or decrease over the loan's remaining term.
Allowance for Loan Losses(ALL)
The Allowance for Loan Losses (ALL) is a contra-asset reserve on a bank's balance sheet representing the cumulative amount set aside to absorb expected future credit losses on the outstanding loan portfolio, funded through the provision for credit losses expense.
Anti-Money Laundering(AML)
Anti-Money Laundering (AML) refers to the body of laws, regulations, and procedures that financial institutions must maintain to detect, prevent, and report the laundering of illegally obtained funds through the financial system.
Bail-In
A bail-in is a resolution mechanism that recapitalizes a failing bank by writing down or converting the claims of its creditors and shareholders into equity, imposing losses on private investors rather than using government funds, thereby shifting the cost of bank failure from taxpayers to the firm's own capital providers.
Bankers Acceptance(BA)
A Bankers Acceptance (BA) is a short-term debt instrument — essentially a time draft drawn on and accepted by a bank — that represents a bank's unconditional obligation to pay a specified sum on a future date, historically used in U.S. and international trade finance and traded as a discounted money market security.
Banking-as-a-Service(BaaS)
Banking-as-a-Service (BaaS) is a model in which licensed banks provide their core banking infrastructure, regulatory licenses, and deposit insurance to third-party companies via APIs, enabling non-bank businesses to offer bank accounts, debit cards, payment capabilities, and other financial products under their own brand.
Basel III(Basel 3)
Basel III is an international regulatory framework developed by the Basel Committee on Banking Supervision that establishes minimum capital, liquidity, and leverage standards for banks to strengthen the global financial system.
Bridge Financing(bridge loan)
Bridge financing is a short-term capital injection intended to sustain a company's operations until a larger, longer-term funding event — such as an equity round, debt refinancing, IPO, or acquisition — is completed, and it typically carries higher costs than permanent capital to reflect its interim and often urgent nature.
Brokered CD(broker CD)
A Brokered CD is a Certificate of Deposit issued by a bank but sold through a brokerage firm or investment platform rather than directly to depositors, allowing investors to access CDs from multiple institutions in one account while retaining FDIC insurance coverage on qualifying balances.
Buy Now Pay Later (BNPL)(BNPL)
Buy Now Pay Later (BNPL) is a short-term financing product that allows consumers to purchase goods or services immediately and pay in installments over a fixed period, typically four equal payments over six weeks, often with no interest if payments are made on time. BNPL products are offered by fintech companies including Affirm, Afterpay, and Klarna, as well as by traditional financial institutions.
Callable CD(callable certificate of deposit)
A Callable CD is a Certificate of Deposit that gives the issuing bank the right — but not the obligation — to redeem the CD before its stated maturity date at par, typically after an initial non-callable protection period, in exchange for offering depositors a higher initial interest rate than a comparable non-callable product.
CD Ladder(certificate of deposit ladder)
A CD Ladder is a savings strategy in which a depositor divides a sum of money across multiple Certificates of Deposit with staggered maturity dates, ensuring that a portion of funds matures at regular intervals to provide periodic liquidity while still capturing higher rates typically offered on longer-term CDs.
Certificate of Deposit(CD)
A Certificate of Deposit (CD) is a time-deposit product offered by U.S. banks and credit unions in which a depositor places a fixed sum for a predetermined term — ranging from a few weeks to several years — in exchange for a guaranteed interest rate that is typically higher than a standard savings account.
CET1 Ratio(CET1)
The Common Equity Tier 1 (CET1) Ratio is the primary measure of a bank's core capital adequacy under Basel III, calculated as CET1 capital — primarily common equity and retained earnings — divided by risk-weighted assets, with higher ratios indicating stronger capitalization.
Commercial Bank(retail bank)
A commercial bank is a financial institution that accepts deposits from the public, makes loans to individuals and businesses, and provides core banking services, regulated at the federal and state level in the United States.
Commercial Paper(CP)
Commercial Paper is an unsecured, short-term promissory note issued by large corporations, financial institutions, and government-sponsored enterprises to fund working capital and other near-term obligations, typically with maturities ranging from overnight to 270 days and sold at a discount to face value in the U.S. money market.
Community Reinvestment Act(CRA)
The Community Reinvestment Act (CRA) is a 1977 U.S. federal law that requires banks to meet the credit needs of the low- and moderate-income communities in which they operate, with their performance evaluated by federal banking regulators.
Conforming Loan(conforming mortgage)
A Conforming Loan is a residential mortgage that meets the loan size limits and underwriting standards set by Fannie Mae and Freddie Mac, making it eligible for purchase by those government-sponsored enterprises and securitization into agency mortgage-backed securities, typically resulting in lower interest rates for borrowers than non-conforming alternatives.
Contingent Convertible Bond (CoCo)(CoCo)
A Contingent Convertible Bond (CoCo) is a hybrid capital instrument that automatically converts into equity or is written down when a bank's capital ratio falls below a predefined trigger level, providing a built-in recapitalization mechanism that activates during financial stress.
Correspondent Banking(correspondent bank)
Correspondent banking is an arrangement in which one bank (the respondent) maintains a deposit account with another bank (the correspondent) in a foreign country, enabling cross-border payments, currency exchange, and trade finance services for clients who lack a direct banking presence in that market.
Credit Rating(bond rating)
A credit rating is an independent assessment of the creditworthiness of a borrower — whether a corporation, government, or financial instrument — expressed as a letter grade that indicates the likelihood the borrower will repay its debt obligations on time and in full.
Discount Window(Fed discount window)
The discount window is the Federal Reserve's lending facility that provides short-term loans to eligible depository institutions, serving as the Fed's primary lender-of-last-resort tool to support banking system liquidity.
Dodd-Frank Act(Dodd-Frank)
The Dodd-Frank Wall Street Reform and Consumer Protection Act is a sweeping 2010 U.S. law enacted in response to the 2008 financial crisis, imposing broad new regulations on banks, derivatives markets, and consumer financial protection.
Embedded Finance(finance-as-a-feature)
Embedded finance is the integration of financial products and services — including payments, lending, insurance, and banking — directly into non-financial platforms and applications, allowing companies outside the traditional financial sector to offer financial functionality within their core customer experience.
Fannie Mae(FNMA)
Fannie Mae (Federal National Mortgage Association) is a U.S. government-sponsored enterprise originally chartered by Congress in 1938 that purchases conforming residential mortgage loans from banks and other lenders, pools them into mortgage-backed securities (MBS), and guarantees timely payment of principal and interest to MBS investors, thereby providing liquidity to the U.S. mortgage market.
FDIC(Federal Deposit Insurance Corporation)
The Federal Deposit Insurance Corporation (FDIC) is an independent U.S. government agency that insures deposits at member banks and savings institutions up to $250,000 per depositor, per institution, per ownership category.
Federal Funds Rate(fed funds rate)
The federal funds rate is the interest rate at which U.S. commercial banks lend their excess reserves to one another overnight, and it serves as the primary tool the Federal Reserve uses to implement monetary policy.
Federal Home Loan Bank(FHLB)
The Federal Home Loan Bank System (FHLB) is a network of eleven regional government-sponsored cooperative banks chartered by Congress in 1932 that provide low-cost secured loans — called advances — to member depository institutions including commercial banks, savings institutions, credit unions, and insurance companies to support housing finance and community lending.
Federal Housing Administration(FHA)
The Federal Housing Administration (FHA) is a U.S. federal agency within the Department of Housing and Urban Development (HUD) that provides mortgage insurance on loans made by FHA-approved lenders, enabling borrowers — particularly first-time homebuyers and those with limited credit history or down payment savings — to access mortgage financing that might otherwise be unavailable.
Federal Reserve(the Fed)
The Federal Reserve, commonly called 'the Fed,' is the central banking system of the United States, responsible for conducting monetary policy, supervising financial institutions, and maintaining the stability of the financial system.
Fractional Reserve Banking(fractional banking)
Fractional reserve banking is the system in which commercial banks hold only a fraction of depositors' funds as reserves and lend out the remainder, enabling banks to create money and multiply the credit available in the economy.
Freddie Mac(FHLMC)
Freddie Mac (Federal Home Loan Mortgage Corporation) is a U.S. government-sponsored enterprise chartered by Congress in 1970 that purchases conforming residential mortgage loans from savings institutions and other lenders, pools them into mortgage-backed securities with a payment guarantee, and sells those securities to investors to replenish lender capital and sustain mortgage credit availability.
Ginnie Mae(GNMA)
Ginnie Mae (Government National Mortgage Association) is a wholly owned U.S. government corporation within the Department of Housing and Urban Development (HUD) that guarantees the timely payment of principal and interest on mortgage-backed securities composed of government-insured or -guaranteed loans, primarily those insured by the FHA, VA, USDA, and HUD's Office of Public and Indian Housing programs.
Glass-Steagall Act(Banking Act of 1933)
The Glass-Steagall Act was a landmark 1933 U.S. banking law that erected a wall between commercial banking and investment banking, prohibiting deposit-taking banks from underwriting or dealing in securities — a separation that stood for over six decades before its partial repeal in 1999.
Government-Sponsored Enterprise(GSE)
A Government-Sponsored Enterprise (GSE) is a federally chartered, privately owned financial institution created by Congress to improve credit flow to specific sectors of the U.S. economy — most prominently housing and agriculture — by issuing debt and guaranteeing financial products with an implied, though not legally explicit, federal government backing.
Home Equity Line of Credit(HELOC)
A Home Equity Line of Credit (HELOC) is a revolving credit facility secured by a second lien on a borrower's primary or secondary residence that allows the homeowner to draw funds up to a set credit limit during a draw period, repay and redraw as needed, and then repay the outstanding balance during a subsequent repayment period, with interest typically charged at a variable rate tied to a market index.
Insurtech(insurance technology)
Insurtech (insurance technology) refers to the use of technology — including artificial intelligence, telematics, big data, and digital distribution platforms — to innovate across the insurance value chain, encompassing product design, underwriting, distribution, claims processing, and customer service.
Interest-Only Mortgage(IO mortgage)
An Interest-Only Mortgage is a home loan on which the borrower is required to pay only the interest accruing on the outstanding principal balance for a defined initial period — typically five to ten years — after which the loan converts to a fully amortizing structure requiring principal and interest payments on the remaining balance over the remaining loan term.
Inverted Yield Curve(yield curve inversion)
An inverted yield curve occurs when short-term U.S. Treasury yields exceed long-term Treasury yields — most commonly when the 2-year yield rises above the 10-year yield — and it is historically regarded as one of the most reliable leading indicators of a U.S. recession.
Investment Bank(bulge bracket bank)
An investment bank is a financial institution that helps corporations, governments, and other entities raise capital through securities offerings, advises on mergers and acquisitions, and facilitates trading in financial markets.
Jumbo CD(jumbo certificate of deposit)
A Jumbo CD is a Certificate of Deposit requiring a minimum deposit that is substantially larger than standard retail CD minimums — historically defined as $100,000 or more — and is used by banks to attract large-balance institutional and high-net-worth depositors, often in exchange for a modestly higher rate.
Jumbo Loan(jumbo mortgage)
A Jumbo Loan is a residential mortgage that exceeds the conforming loan limits set annually by the Federal Housing Finance Agency, making it ineligible for purchase by Fannie Mae or Freddie Mac and requiring the lender to either retain the loan on its balance sheet or sell it into the private-label securitization market.
Know Your Customer(KYC)
Know Your Customer (KYC) is the regulatory obligation requiring financial institutions to verify the identity of their clients, understand the nature of customers' financial activities, and assess the risk of illegal activity before and during a banking relationship.
Leverage Ratio (Banking)(SLR)
The Banking Leverage Ratio is a non-risk-based capital adequacy measure that divides Tier 1 capital by total leverage exposure (a comprehensive measure of on- and off-balance-sheet assets), preventing banks from becoming excessively leveraged even if risk-weighted asset calculations show low capital requirements.
LIBOR (Historical)(London Interbank Offered Rate)
LIBOR (London Interbank Offered Rate) was the global benchmark interest rate at which major banks indicated they could borrow unsecured funds from each other, underpinning hundreds of trillions of dollars in financial contracts before its discontinuation in 2023.
LIBOR-OIS Spread(LIBOR OIS basis)
The LIBOR-OIS Spread is the historical difference between the three-month London Interbank Offered Rate (LIBOR) and the Overnight Index Swap (OIS) rate, widely used before LIBOR's discontinuation as a measure of stress and liquidity risk in the short-term interbank lending market.
Liquidity Coverage Ratio(LCR)
The Liquidity Coverage Ratio (LCR) requires large banks to hold sufficient high-quality liquid assets (HQLA) to cover projected net cash outflows over a 30-day stress scenario, ensuring banks can survive short-term funding disruptions without central bank support.
Living Will (Banking)(resolution plan)
A living will in banking is a resolution plan that large financial institutions are required by Dodd-Frank to file with the Federal Reserve and FDIC, detailing how the firm could be rapidly wound down in bankruptcy without destabilizing the broader financial system.
Loan-to-Deposit Ratio(LDR)
The Loan-to-Deposit Ratio (LDR) measures the proportion of a bank's deposits that have been deployed as loans, providing an indicator of liquidity risk and how aggressively a bank is using its deposit funding base to generate interest income.
Mezzanine Financing(mezz financing)
Mezzanine financing is a hybrid capital structure instrument that sits between senior secured debt and common equity in a company's capital stack, combining debt-like features such as fixed interest payments with equity-like features such as warrants or conversion rights, and is frequently used in leveraged buyouts and late-stage growth financings.
Money Market(money market fund)
The money market is the segment of the financial market where short-term debt instruments with maturities of one year or less — including Treasury bills, commercial paper, certificates of deposit, and repurchase agreements — are issued and traded.
Money Market Account(MMA)
A Money Market Account (MMA) is a federally insured deposit account offered by U.S. banks and credit unions that typically pays a higher interest rate than a standard savings account while providing limited check-writing and debit card access, combining features of both savings and checking products.
NAV Lending(NAV facility)
NAV lending, or net asset value lending, is a form of private credit in which a lender extends a loan to a private equity fund or its holding company secured by and sized relative to the net asset value of the fund's portfolio of investments, providing the GP with capital for follow-on investments, portfolio company support, or distributions to LPs without requiring asset sales.
Neobank(digital bank)
A neobank is a fully digital financial institution that operates exclusively through mobile apps and web platforms, offering checking accounts, savings accounts, and payment services without traditional branch networks. Neobanks in the United States typically partner with FDIC-insured banks to hold customer deposits.
Net Charge-Off Rate(NCO rate)
The Net Charge-Off Rate (NCO rate) measures the annualized percentage of average loans that a bank has written off as uncollectible (gross charge-offs) net of any recoveries on previously charged-off loans, serving as a key indicator of actual credit loss experience.
Net Stable Funding Ratio(NSFR)
The Net Stable Funding Ratio (NSFR) requires banks to fund long-term, illiquid assets with stable, long-term liabilities, ensuring that banks are not structurally dependent on short-term funding that could disappear in a stress scenario extending beyond 30 days.
Open Banking(financial data sharing)
Open banking is a framework that gives consumers the right to share their financial data held at banks and financial institutions with authorized third-party applications and services, enabling the development of new financial products and personalized financial management tools. In the United States, open banking is governed primarily by Section 1033 of the Dodd-Frank Act and associated CFPB rulemaking.
Overnight Reverse Repo(ON RRP)
The overnight reverse repo (ON RRP) facility is a Federal Reserve tool that allows eligible counterparties to deposit excess cash at the Fed overnight in exchange for Treasury securities, effectively setting a floor on short-term interest rates.
Payment Processor(payments company)
A payment processor is a company that facilitates electronic transactions between merchants and customers by transmitting payment data, authorizing transactions, and settling funds across financial institutions. In the United States, payment processors operate within a network involving card networks, issuing banks, and acquiring banks.
Prime Rate(WSJ prime rate)
The prime rate is a benchmark interest rate set by major U.S. commercial banks that is typically 3 percentage points above the federal funds rate, and it serves as the basis for pricing consumer and small-business loans including home equity lines of credit and credit cards.
Provision for Credit Losses(PCL)
The Provision for Credit Losses (PCL) is the expense a bank records on its income statement to build or maintain its allowance for loan losses, representing management's estimate of expected future credit losses on the current loan portfolio.
Quantitative Easing(QE)
Quantitative easing (QE) is an unconventional monetary policy tool in which the Federal Reserve purchases large quantities of longer-term securities — typically Treasury bonds and mortgage-backed securities — to inject liquidity into the financial system and push down long-term interest rates when short-term rates are already near zero.
Regtech(regulatory technology)
Regtech (regulatory technology) refers to the use of technology — including artificial intelligence, machine learning, cloud computing, and data analytics — to help financial institutions and other regulated businesses comply with regulatory requirements more efficiently and accurately.
Repurchase Agreement(repo)
A Repurchase Agreement (repo) is a short-term collateralized borrowing arrangement in which one party sells securities — typically U.S. Treasury securities or agency mortgage-backed securities — to a counterparty with a simultaneous contractual agreement to repurchase the same securities at a specified price on a future date, with the price difference representing the interest cost of the loan.
Reserve Requirement(required reserve ratio)
A reserve requirement is the minimum fraction of deposits that a bank must hold as reserves rather than lending out, historically set by the Federal Reserve, which reduced the requirement to zero in March 2020.
Resolution Planning(living will)
Resolution Planning requires large US banks to prepare and regularly submit detailed plans — known as living wills — to the Federal Reserve and FDIC outlining how they could be wound down in an orderly manner during a failure without requiring a taxpayer bailout or destabilizing the financial system.
Reverse Repurchase Agreement(reverse repo)
A Reverse Repurchase Agreement (reverse repo) is the mirror transaction to a repo: the party that provides cash purchases securities from a counterparty under an agreement to resell them at a higher price on a specified future date, effectively lending cash on a secured basis and earning interest equal to the repo rate for the transaction term.
Savings Bond (Series EE)(EE bond)
A Series EE Savings Bond is a non-marketable, low-risk U.S. government savings instrument issued at face value that accrues interest at a fixed rate set at purchase, and is guaranteed by the U.S. Treasury to double in value within 20 years if held to that threshold, after which it continues earning interest for an additional 10 years.
Series I Bond(I bond)
A Series I Bond is a non-marketable U.S. government savings bond that pays a composite interest rate combining a fixed base rate set at purchase and a variable inflation adjustment that resets every six months based on changes in the Consumer Price Index for All Urban Consumers (CPI-U), providing built-in protection against inflation over a holding period of up to 30 years.
Shadow Banking(non-bank financial intermediation)
Shadow banking refers to financial intermediation conducted by non-bank entities — such as money market funds, hedge funds, and mortgage REITs — that perform bank-like credit functions but operate outside traditional bank regulatory oversight.
SIPC(Securities Investor Protection Corporation)
The Securities Investor Protection Corporation (SIPC) is a nonprofit membership corporation that protects customers of failed SIPC-member brokerage firms, covering up to $500,000 in securities and cash — including up to $250,000 in cash — per customer account.
SOFR(Secured Overnight Financing Rate)
SOFR (Secured Overnight Financing Rate) is the benchmark interest rate that replaced LIBOR in the United States, measuring the cost of overnight borrowing collateralized by U.S. Treasury securities.
Stress Test(DFAST)
A bank stress test is a regulatory examination that evaluates whether large financial institutions have sufficient capital to absorb losses under hypothetical adverse economic scenarios, required annually by the Federal Reserve under the Dodd-Frank Act.
Subscription Line of Credit(capital call facility)
A subscription line of credit, also called a capital call facility or fund subscription facility, is a short-term revolving credit line extended to a private equity fund secured by the unfunded capital commitments of the fund's limited partners, allowing the GP to draw on credit to fund investments before making formal capital calls to LPs.
Swift Code(BIC)
A SWIFT code (also called a BIC) is a standardized 8- or 11-character identifier assigned to financial institutions by the Society for Worldwide Interbank Financial Telecommunication, used to route international wire transfers and financial messages between banks globally.
Systemically Important Financial Institution(SIFI)
A Systemically Important Financial Institution (SIFI) is a bank or non-bank financial firm whose failure could trigger widespread disruption across the financial system and economy, subjecting it to enhanced federal oversight and capital requirements under Dodd-Frank.
Tangible Common Equity(TCE)
Tangible Common Equity (TCE) is a bank's common shareholders equity stripped of goodwill, other intangible assets, and preferred equity, representing the purest estimate of hard book value that would remain for common shareholders in a stress or liquidation scenario.
Too Big to Fail(TBTF)
Too Big to Fail describes the implicit government guarantee extended to financial institutions so large and interconnected that their failure would cause catastrophic damage to the broader financial system and economy, compelling regulators to intervene with public funds.
Treasury Bill(T-bill)
A Treasury bill (T-bill) is a short-term U.S. government debt obligation with a maturity of one year or less, sold at a discount to face value and redeemed at par, with the difference representing the investor's return.
Treasury Bond(T-bond)
A Treasury bond (T-bond) is a long-term U.S. government debt security with a maturity of 20 or 30 years that pays semi-annual interest (coupon payments) and returns the principal at maturity.
TreasuryDirect(Treasury Direct)
TreasuryDirect is the U.S. federal government's online platform, operated by the Bureau of the Fiscal Service within the Department of the Treasury, that allows individual investors to purchase, hold, and manage U.S. Treasury securities — including bills, notes, bonds, TIPS, and savings bonds — directly from the government without a broker.
Venture Debt(venture lending)
Venture debt is a form of debt financing extended to venture-backed startups, typically alongside or shortly after an equity round, providing additional capital without immediate equity dilution in exchange for interest payments and warrants that give the lender the right to purchase equity at a fixed price.
Volcker Rule(Volcker provision)
The Volcker Rule is a federal regulation under the Dodd-Frank Act that prohibits banks from engaging in proprietary trading for their own profit and restricts their investments in hedge funds and private equity funds, aiming to separate commercial banking from speculative risk-taking.
Wealthtech(wealth technology)
Wealthtech refers to technology companies and platforms that use digital tools — including robo-advisors, AI-driven financial planning software, portfolio analytics, and digital brokerage infrastructure — to deliver wealth management, investment advisory, and financial planning services, often at lower cost and with broader accessibility than traditional wealth management firms.
Wire Transfer(bank wire)
A wire transfer is an electronic funds transfer that moves money directly between bank accounts — domestically through the Fedwire or CHIPS networks, and internationally through the SWIFT messaging network — typically settling the same day or next business day.
Yield Curve(Treasury yield curve)
The yield curve is a graphical representation of interest rates across different maturities for U.S. Treasury securities at a single point in time, typically sloping upward to reflect higher yields for longer-term bonds.