A

Acronyms (pdf document)

Above Par (Value):
A higher dollar amount than the face value, or par, of a security. Above par occurs when a security sells at a premium - for more than par or face value. The premium is the difference between the face value and the market price.

Accelerated Mortgage Amortization:
The restructuring of an existing mortgage loan by increasing the monthly payment to pay off the loan in a shorter time than the original maturity.

Acceleration Clause:
A clause commonly included in mortgages and bonds, it gives the holder the right to demand that the borrower pay the entire outstanding balance in the event of default or other breach of contract.

Account Analysis:
A statement, essentially an invoice for services, that a financial institution provides to its commercial customers specifying services provided, volumes of transactions processed, and charges assessed.

Accounting Research Bulletins (ARB):
Pronouncements issued by the Committee on Accounting Procedure of the American Institute of CPAs (AICPA) during the period 1939 through 1959, at which time the Accounting Principles Board replaced the Committee. Fifty-one ARBs were issued, formally establishing accounting principles on a variety of issues.

Account Resolution:
A board of directors' resolution granting authorization for the establishment of an account in the name of the company and specifying those individuals or officers authorized to transact business in relation to the account.

Accounts Payable:
Short-term liabilities incurred and amounts recorded on the books of a company or individual that are owed to a creditor for previously purchased merchandise or services rendered.

Accounts Receivable:
Amounts recorded as assets on the books of a company or individual that are due for merchandise sold or services rendered.

Accrete:
The process whereby a bond issued at a discount to par increases to face value as it approaches maturity.

Accretion:
Addition to income resulting from gradual, periodic reduction of deferred income.

Accrual Basis:
The basis of accounting under which revenues are recorded when earned and expenditures are recorded as soon as they result in liabilities for benefit received, notwithstanding that the receipt of the revenue or the payment of the expenditure may take place, in whole or in part, in another accounting period. Opposite of cash basis accounting.

Accrued Dividend:
A dividend declared by the Board of Directors and considered to be earned and payable but not yet paid on stock or other instruments of ownership of a business.

Accrued Expense:
Costs incurred during an accounting period but not paid.

Accrued Interest:
Interest earned, but not received or credited, for the period of time that has elapsed since interest was last received.

ACH Credit Transaction:
An Automated Clearing House (ACH) transaction that involves the transfer of funds from an originator's account to a receiver's account.

ACH Debit Transaction:
An Automated Clearing House (ACH) transaction that moves funds from the receiver's account to the originator's account.

ACH Operator:
An Automated Clearing House (ACH) association or Federal Reserve bank that processes and distributes ACH transactions received from an originating financial institution.

Activation:
The implementation of recovery procedures, activities, and plans in response to an emergency or disaster declaration.

Alternate Site:
An alternate operating location to be used by business functions when the primary facilities are inaccessible.

Add-on Interest:
The amount of interest the borrower will pay during the term of the loan that is added to the principal of the loan to determine the face amount of the note. The borrower signs a note promising to repay the face amount (principal plus interest), although only the principal is disbursed to the borrower. Since the interest is not yet earned at the date of closing, a contra-account to the loan is set up representing the unearned interest. This contra-account is reduced monthly and credited to interest income until at the time of maturity the contra-account is zero and the full principal is due.

Adjustable-Rate Mortgage (ARM):
A loan with an interest rate that is periodically adjusted, moving higher or lower in the same ratio as a pre-selected index, such as Treasury bill rates. ARM loans may limit interest rate increases, caps, within a given time period and over the life of the loan, and may limit the frequency of interest rate adjustments. Typically, ARM loans initially have below-market interest rates, teaser rates, in return for the borrower sharing the risk that interest rates may rise during the course of the loan.

Adjusted Basis:
Equals cost at which an asset is acquired and adjusted for certain occurrences since the day of acquisition. For example, the adjusted basis of real property is generally the purchase price plus capital improvements to the property less any depreciation taken. Adjusted basis is used in calculating gains and losses on the sale of an asset.

Adjusting Entries:
Bookkeeping entries made after the trial balance is prepared but before the closing entries. The adjusting entries are necessary to make the income and expense accounts consistent with the accrual method of accounting.

Adjustment Period:
The adjustment period is the frequency that the lender adjusts the interest rate on a variable-rate mortgage loan. For example, a 1-year ARM would have an adjustment period of one year.

Advances:
Loans the Federal Home Loan Banks issue to member savings associations.

Affiliated Company:
(1) A company that exercises control over another companies either directly or indirectly. (2) A company that has common ownership with another company.

Affiliated Person:
(1) A director, officer, or controlling person of a savings association or its holding company. (2) A member of the immediate family residing in the same household as a director, officer, or controlling person of a savings association.

Agencies:
Securities issued by an agency of the federal government, for example, Fannie Mae, Ginnie Mae, etc.

Aging Schedule:
At a given point in time, a list of the percentages and/or amounts of outstanding accounts receivable classified as current or past due in 30-day increments.

Allowance:
A reserve set aside for bad debts or for depreciation.

Allowance for Loan and Lease Losses (ALLL):
Valuation allowances established to absorb unidentified losses inherent in a savings association’s overall loan and lease portfolio. See General Valuation Allowances and Specific Valuation Allowances. Mortgage plans that differ from conventional fixed rate, fixed term, fixed monthly payment, fully amortized mortgages.

Amortization:
(1) The gradual reduction of an asset or liability by means of periodic charges to reduce income or to increase expense. (2) The repayment of a loan calculated so that the principal will be paid in full through monthly payments of principal and interest for a predetermined period of time, typically 30 years for one-to four-family residential mortgages.

Amortized Cost:
Equals the face value net of un-amortized discounts and premiums less write-offs. 

Anniversary Date:
Anniversary date is the periodic date, usually once a year, that the interest rate is reset on an adjustable-rate mortgage.

Annual Percentage Rate (APR):
A requirement of Truth in Lending laws designed to show consumers the total cost of credit, including the effective interest rate plus certain finance and service charges, points.

Annual Percentage Yield (APY):
The effective annual rate of income expressed as a percentage of the price originally paid. This calculation assumes that interest earned is reinvested.

Annuity:
(1) A series of equal payments at fixed intervals, such as monthly or annually. (2) An investment yielding fixed payments during the holder’s lifetime or for a stated number of years.

Anticipatory Hedge:
(1) A long anticipatory hedge is initiated by buying futures contracts to protect against a rise in the price of an asset to be purchased at a later date. (2) A short anticipatory hedge is initiated by selling futures contracts to protect against the decline in price of an asset to be sold at a future date, or to protect against a rise in interest rates of a fixed-rate liability or a future repricing on a variable-rate liability.

Appraisal Value:
Appraisal value is the market value of an asset that is derived from the appraisal process. Depending on the asset, the method used to appraise the asset will differ. For homes, appraisers often use a method that includes recent sales data of comparable homes. They may also use the replacement method, which is the cost to replace the home at today's prices.

Appreciation Rate:
Appreciation rate is the yearly percentage rate that an asset increases in value. For example, a home that you paid $150,000 three years ago that is almost worth $200,000 today had an average appreciation rate of 10%. After the first year, the home was worth $165,000. After the second year, the home was worth $181,500. And after the third year, the home is worth just a little under $200,000.

Arbitrage:
A transaction that involves buying a commodity in one market and simultaneously selling it in another market to profit from a disparity in prices between two markets. In a true arbitrage, the timing of the transactions must be simultaneous, thus imposing no risk to the investor.

Arm’s-length Transaction:
(1) A transaction negotiated by unrelated parties, each acting in his or her own best interest. (2) The basis for a fair market value determination.

Arrears:
A payment not made when due. Frequently used in connection with installment notes, mortgages, rent, and other obligations due and payable on a certain specified date.

Asked Price:
The price at which a security is offered for sale.

Assessment:
(1) An estimate of the value of real property for levying taxes; also called assessed valuation. (2) A charge against real property levied by a public governing body for a local improvement, such as a sewer repair or street paving.

Asset:
Anything owned by an individual or company that has commercial usefulness or value if sold. An asset may be physical property, enforceable claims against others, including loans and accounts receivable, and deferred expenses. An asset may be tangible or intangible.

Asset/Liability Management:
A planning and control process, the key concept of which is the integrated approach to matching the mix and maturities of assets and liabilities to achieve a favorable and even flow of “net interest margin.”

Asset-Based Borrowing:
Lending based on the pledging of accounts receivable, inventory, or other assets as loan collateral.

Assets-Backed Securities:
Corporate debt obligations secured by specific assets, such as accounts receivable.

Assisted Merger:
The takeover of a troubled savings association by another depository institution with financial assistance provided from a federal deposit insurance fund.

At-the-Money Option:
An option with a strike price equal to the current market price of the underlying cash or futures contract. In this instance, the intrinsic value is zero and the value of the option reflects a premium paid for: (1) the time the holder has to decide whether or not to exercise the option, and (2) the expected price volatility. The value of this premium declines over time.

Automated Teller Machine (ATM):
A machine that permits customers to gain access to their accounts through the use of a magnetically encoded plastic card and by pushing appropriate buttons on a computer terminal. ATMs dispense cash, accept deposits, transfer funds from one account to another, and perform other functions.

Average Rate of Return:
The return of an investment calculated by totaling the cash flow over the years divided by the amount of the investment, and dividing that amount by the number of years (or months) that the investment is outstanding.

Availability Float:
The time interval or dollar amount outstanding between the time a check is deposited and the time the company's account is credited with collected funds.

Availability Schedule:
A schedule that specifies when a bank or the Federal Reserve grants credit for deposited checks in the form of an increase in the depositor's available or collected balance.

Available Balances:
The amount of funds available for withdrawal from an account.

B

Bad Debt Reserve:
A valuation allowance that savings associations maintain for income tax purposes to offset losses from foreclosed or un-collectable loans.

Balance and Transaction Activity:
Information on current ledger and collected balances, one-, and two-day float, debit and credit detail, and adjustment items. Average balances and a balance history may also be reported.

Balance Sheet:
One of the standardized financial statements that companies and individuals use to show assets, liabilities, and equity (or net worth) at a given point in time.

Balance Sheet Matching:
The matching of interest-sensitive assets with interest-sensitive liabilities eliminating the exposure to interest rate changes.

Balloon Loan:
A loan that does not fully amortize by the end of the loan term. Periodic payments may be for principal and interest, or for interest only. At maturity, the unpaid principal is due in a lump sum.

Bank Check:
A check that a bank draws on itself then has it signed by an authorized bank officer.

Bank Insurance Fund (BIF):
A fund, administered by the FDIC, that insures deposits of member banks (primarily commercial banks) up to $100,000 per depositor.

Bank Investment Contract (BIC):
Investment contract issued by a bank where interest is guaranteed by the bank in a portfolio over a specific time frame with a specific yield. Unlike guaranteed investment contracts (GICs), BICs do not include annuity provisions.

Banker’s Acceptance:
A draft drawn on a depository institution by another, which when accepted by the depository institution, obligates the depository institution to pay specific obligations of the draft writer when due. Acceptance converts a depositor’s “order to pay” into an unconditional “promise to pay” by the accepting depository institution. Bankers acceptances are effectively a guaranty of payment for a purchase and are generally used in financing the import, export, transfer or storage of goods.

Bank Notes:
Subordinated debt instruments with yields that are close to those of similarly rated commercial paper that banks issue.

Basis Point:
A measurement of yields or changes in prices or yields for securities. One basis point equals one one/hundredth of one percent. One hundred basis points equal one percent.

Base Rate:
A widely recognized and quoted interest rate-such as the Fed funds rate, the prim rate, or the London InterBank Offered Rate (LIBOR)-on which a rate of interest is based.

Bear Market:
(1) A period of falling prices. (2) A condition of a stock market characterized by a selling trend and declining prices. (3) Opposite of a bull market.

Bearer Bond:
A bond that does not have the owner’s name registered on the books of the issuing agency or company, and is payable to whomever holds the bond.

Before-tax Income:
Gross income less all expenses except for income tax expense.

Below Market:
A price that is lower than the prevailing level at which a security is currently quoted or traded.

Below-market Interest Rate:
A lower interest rate than the current rate for conventional financing in a given geographical area. Programs with below-market rates may be used to assist low or moderate income buyers.

Below Par:
A price lower than par or face value. The difference between the price and the face value is the discount.

Bid:
(1) The price that a potential buyer is willing to pay for a security. (2) An offer to purchase something.

Bilateral Netting: System in which purchases between two subsidiaries of the same company are netted against each other so that over time, typically one month, only the difference is transferred.

Blanket Mortgage Loan:
A loan made to developers or contractors to purchase one or more tracts of land with the intention of dividing the land into smaller parcels for resale or development.

Board of Governors of the Federal Reserve System:
The seven-member body that oversees the U.S. Federal Reserve and supervises the U.S. banking system.

Bond:
A certificate that evidences a debt. The debt is initiated when the issuer sells the bond to the holder for a specific amount of cash. The issuer is obligated to pay the holder of the bond a fixed sum (the bond’s face value) at a stated future date and to pay interest (usually twice a year) at a specified rate during the life of the bond. Corporations, the federal government, and state and local governments may issue bonds as a means of raising funds in the capital markets. Bonds may be issued in registered form, in which the name of the holder is on record with the issuer, or in bearer form, in which the name of the owner is not registered and the bond is payable to whomever bears or presents the bond to the issuer for redemption.

Bond Discount:
The difference between the purchase price and face value of a bond when the face value exceeds the purchase price. Normally a bond sells at a discount when the stated interest rate of the bond is less than the current market interest rate. The discount is accreted to interest income over the life of the bond, increasing the stated interest rate of the bond to the market interest rate at the time of purchase.

Bond Equivalent:
A yield based on a 365-day year with two semiannual coupon payments.

Bond Premium:
The difference between the purchase price and the face value of a bond when a bond sells above par. Normally a bond sells at a premium when the stated interest rate is greater than the current market interest rate. The premium is amortized to interest income over the life of the bond, decreasing the stated interest rate of the bond to the market interest rate at the time of purchase.

Bond, Debenture:
A bond for which there is no specific security, collateral, set aside or allocated for repayment of the principal.

Bond, Interim:
Sometimes used before the issuance of permanent bonds to raise funds needed only temporarily.

Bond, Junk:
Bonds rated lower than investment grade that yield higher rates of interest than the current investment grade bond market.

Bond, Par:
A bond selling at par, whose interest rate is in line with prevailing market interest rates.

Bond, Stripped:
Bonds whose coupons have been clipped off. The principal and interest (coupons) are sold to separate groups of investors. Those seeking current income buy the strip of coupons, and those wanting a lump sum at maturity buy the principal or “corpus” portion. Because each portion is worth less than its whole, both are sold at a deep discount from their face values.

Bond, Treasury:
A U.S. Government long-term security sold to the public with a maturity of longer than five years.

Bond, Zero-Coupon:
A security sold at a deep discount from its face value and redeemed at the full amount at maturity. The difference between the cost of the bond and its value when redeemed is the investor’s return. These notes provide no interest payments to holders.

Book Value:
(1) The amount at which a business carries an asset on the accounting books. (2) Book value is equal to face value less un-amortized discounts, plus un-amortized premiums, plus accrued interest, less depreciation, valuation allowances, and write-offs. (3) Equivalent to Carrying Value.

Broker:
An agent or middleman who does not actually own the securities or property he sells or buys. A broker, as opposed to a dealer, is always acting on behalf of another individual.

Broker-originated Deposit:
Any deposit placed in a savings association by or through a deposit broker.

Brokerage Fee:
A fee, usually referred to as a commission fee, charged by a broker for execution of a transaction. The broker may base the fee on an amount per transaction or a percentage of the total value of the transaction.

Bullet Maturity:
A loan where the entire principal amount is due on the final maturity date.

Buy-back Agreement:
A provision in a sales contract stating that the seller will repurchase the asset sold within a specified period of time, usually for the selling price, if certain stated conditions exist.

Buying Hedge:
Buying futures contracts to protect against possible increased cost of commodities or financial instruments that will be needed in the future. Also referred to as a long hedge.

Buying Long:
Buying stocks, bonds, or commodities outright with the expectation of holding them for a rise in price and then selling.

Break-even Point:
When you refinance a mortgage, the decision is profitable if you are able to pass the break-even point. At the break-even point, the savings you receive from refinancing equal the costs. A common break-even analysis is to calculate how long you must live in a home after you refinance in order to recover the closing costs you paid to refinance. For investing in stocks and mutual funds, break-even analysis is used to calculate the minimum sale price that allows the buyer to recover the transaction costs from buying the shares. For business operations, a business reaches its break-even point when it generates enough sales to pay for all its fixed costs. For each additional dollar of sales, variable costs should be less than a dollar. As a result, each dollar of sales past the break-even point generates some profit.

C

Call:
(1) An option to buy a specific security at a specified price within a designated period. (2) A demand by a lender for payment of a loan because of the failure of the borrower to comply with the terms of the loan. (3) A demand by the issuer of the redemption of stocks or bonds.

Call Option:
An option that gives the option buyer the right to purchase - go long - the underlying futures contract at the strike price on or before the expiration date.

Call Price:
The price at which a callable bond is redeemable. It is used in connection with preferred stocks and debt securities having a fixed claim. It is the price that an issuer must pay to voluntarily retire such securities. This often exceeds the par or liquidating price to compensate the holder of the called security for his or her loss of income and investment position resulting from the call.

Callable Bond:
A bond that is redeemable by the issuer prior to maturity; for example, most Treasury bonds are callable five years before maturity at a specific price.

CAMELS:
A depository financial institution rating system. CAMELS is an acronym for capital adequacy, asset quality, management capability, earnings, liquidity and susceptibility to market risk.

Cap:
(1) The maximum rate to which an ARM may adjust also referred to as a ceiling. (2) A contractual agreement, akin to an insurance policy, in which a third party limits the interest that will be received or paid if interest rates increase by a predetermined number of percentage points, also referred to as an interest-rate cap.

Capital:
Generally represents the owners’ interest in the company’s net assets. It is also called equity capital, stockholders’ equity, and net worth. The capital of a company includes capital contributed by the owners’ plus the retention of earnings over time.

Capital Asset:
(1) An asset with an expected life of over one year and one that is not bought and sold in the normal course of business. (2) A fixed asset.

Capital Expenditure:
Money spent for additions or improvements to structures or equipment used to carry on the activities of an organization or individual.

Capital Gain or Loss:
The gain or loss incurred from the sale or disposition of assets other than inventory, such as investment securities, and real estate.

Capitalize:
The treatment of large expenses as part of a firm’s assets. Thus, rather than treating an expenditure as a deduction from the income statement, it is treated as an asset.

Capitalized Interest:
Interest not expensed, but added to the carrying value of an asset. The purpose of capitalizing interest is to obtain a measure of acquisition cost that reflects the total investment in the asset. Interest is typically capitalized for assets that are constructed for a business’s own use or for assets intended for sale or lease that are constructed as a discrete project.

Capitalized Loan:
A loan to which all amounts due are added to the balance of the loan and all payments received are deducted from the balance of the loan. For example, each month as interest is earned and escrow payments become due, these amounts are added to the loan balance; when payment is received it is deducted from the loan balance. Any unpaid amounts become part of the loan principal.

Captive Insurance Company:
An insurance company in which an association is required to purchase stock in order to receive insurance.

Carrying Amount of Loan:
Recorded investment in the loan minus valuation allowances.

Carrying Value:
(1) The amount at which an asset is carried on the books of a business. (2) Amortized cost - face value adjusted for un-amortized discounts and premiums, accrued interest, depreciation, valuation allowances, and write-offs. (3) Equivalent to Book Value.

Cash Basis Accounting:
(1) A method of accounting in which income and expense items are recorded and recognized when cash is received or disbursed. (2) Opposite of accrual basis accounting.

Cash Market:
A market in which securities are traded for immediate delivery for a cash payment.

Cash Price:
The price that a specific financial instrument is presently selling in the open market.

Cashier Checks:
A check drawn by a financial institution on itself, signed by an institution’s authorized officer and payable to a third party named by a customer making the withdrawal. See Official Checks.

Cash Concentration:
The movement of funds from outlying depository locations to a central bank account where they can be utilized and managed most effectively.

Cash Concentration or Disbursement (CCD):
An Automated Clearing House (ACH) payment format for concentration and disbursement of funds within a company or between companies.

Cash Concentration or Disbursement Plus Addendum (CCD+):
An Automated Clearing House (ACH) format used for U.S. Treasury Vendor Express Program and company-to-company payments.

Cash Letter:
A bundle of checks accompanied by a list of individual items and control documents.

Cease and Desist Order (C & D):
A demand from the courts or government agency that an entity cease an activity.

Certificate of Deposit (CD):
A written document a financial institution issues to a depositor as evidence of its deposit. It includes the institution’s promise to return the deposit at a specified future date with earnings at a specified rate of interest. It may be negotiable (transferable to another party) or nonnegotiable. The interest specified may adjust periodically according to a predetermined formula or index or may be fixed for the term of the deposit.

Certificate of Deposit (demand):
A negotiable or transferable receipt issued for funds deposited with a financial institution and payable on demand to the holder. These receipts normally do not bear interest and are used principally by contractors and others as a guarantee of performance of a contract or as evidence of good faith when submitting a bid. They may also be used as collateral.

Chattel Mortgage:
A mortgage on personal property, such as an automobile or furniture, that is given as security to pay an obligation.

Charge-off:
The amount of loss to an asset that, when recorded, directly reduces the balance of an asset. Consequently, the loss is not established separately as a valuation allowance.

Check Retention:
Also known as check safekeeping, a service financial institutions perform by retaining paid checks for periods that typically range from one to six months. Companies can receive microfilm, microfiche, or CD-ROM image records of the checks.

Check Truncation:
The process by which essential information contained on a conventional paper check is captured electronically and the electronic information, not the paper check, is sent through the clearing system.

Classified Assets:
Assets, generally loans, whose value may not be recoverable. Such assets are classified as substandard, doubtful, or loss.

Clear Title:
A title to real or personal property that has no liens recorded against it and that is transferable to another party. Synonymous with good title, just title, and marketable title.

Clearing House Automated Payment System (CHAPS):
A U.K.-based payment system for high-value, same-day settlement of transactions.

Clearing House Interbank Payment System (CHIPS):
An independent message-switching system that permits international financial transactions to be settled among New York banks. CHIPS is operated by the New York Clearing House Association.

Closed-end Credit:
A loan where the entire amount is disbursed to the borrower. Overdraft privileges, credit cards, most home equity loans, and lines of credit are open-end rather than closed-end loans because, although they have a fixed ceiling, the association will not necessarily disburse the full amount of the line of credit.

Closed-end Mortgage:
A mortgage with a prohibition against additional borrowing using the same lien. The prohibition against additional borrowing protects the existing creditors from having the security diluted.

Closing:
Consummating a financial transaction. In mortgage lending, closing is the process of the delivery of a deed, the signing of loan documents, and the advancing of funds by the lender.

Closing Costs:
Closing costs are the total expenses that the buyer pays at the time a real estate transaction is completed. This stage of the transaction is called "closing." Closing costs include application, underwriting and loan-origination fees; mortgage points; title search and insurance; fees for related legal services; and costs to fund an escrow account. For home mortgage loans, closing costs generally range between 3 and 6 percent of the home purchase price.

Closing Price:
The price at which transactions are made just before the end of trading on a given day.

Closing Transaction:
(1) The final transaction for a particular security during a trading day. (2) An option order that will eliminate or decrease the size of an existing option position.

Co-borrower:
A co-borrower/co-maker is someone who applies for credit with another person(s) and they both directly benefit from and receive loan proceeds. Both borrowers are responsible for repaying the loan.

Cold-Site:
One or more data center or office space facilities equipped with sufficient pre-qualified environmental conditioning, electrical connectivity, communications access, configurable space and access to accommodate the installation and operation of equipment by critical staff required to resume business operations.

Collar:
A maximum and minimum rate of interest that will be paid on the par value of a floating-rate note.

Collateral:
Something of value pledged as security for a loan. The lender can repossess the collateral if the loan is not repaid.

Collateral Loan:
A loan for which the borrower deposits certain property with the lender as a pledge of payment. The lender usually has the right to sell the property to pay off the debt if the borrower does not pay according to its term.

Collateral Mortgage:
A document used with a loan that effects a lien on real estate, where the loan is not a purchase-money mortgage.

Collateralized Mortgage Obligation (CMO):
A multiclass, mortgage-backed security. An underlying pool of mortgages held by the issuer serves as collateral for the debt obligation, and principal and interest payments from the pool of mortgages are used to retire the CMOs. Typically, a single issue of CMOs contains three or more classes, trenches, of bonds having fixed or floating interest rates, and different lengths of maturity for each class of bond that provides a form of call protection to the holder of a CMO.

Collateral Trust Notes:
Bonds secured by the deposit of other bonds or stocks, usually issued by holding companies, investment trusts, and railroads.

Collective Investment Fund (CIF):
The collective investment of fiduciary accounts. Generally includes accounts held by a trustee, executor, administrator or guardian. Used primarily to describe the collective investment of tax-qualified retirement plans.

Combined Construction-Permanent Loan:
Loans used to finance construction and that are converted to permanent loans upon completion of construction. Typically, the borrower makes no principal payments during the construction period, and upon conversion to a permanent loan begins to make both interest and principal payments.

Commercial Letter of Credit:
An instrument by which a financial institution lends its credit to a customer to enable him to finance the purchase of goods. Addressed to the seller, the letter authorizes him to draw drafts on the financial institution under the terms stated.

Commercial Loan:
Loans made to businesses for the financing of inventory purchases and operating expenses, as distinguished from personal loans or consumer credit loans. Commercial loans are typically short-term loans or acceptances.

Commercial Mortgage:
A loan secured by real estate that is used, zoned, or intended for business purposes or multi-unit dwellings, or is part of a real estate investment portfolio.

Commercial Paper:
An unsecured debt instrument issued by a corporation with a fixed maturity, typically for a short-term period (30, 45, 60, or 90 days). It is generally priced at a discount from par and is redeemable at par on the maturity date. Individual and corporate investors buy, sell, and trade commercial paper. 

Commissions:
(1) A fee for services rendered. (2) The fees that a broker charges a customer for executing a trade.

Commitment:
An advance agreement to perform in the future, such as to provide funds for a mortgage loan or to buy or sell securities. Commitments may be at a fixed interest rate or price determined on the commitment date or at a rate or price to be determined at closing date. Commitments may be in the form of a commitment letter or may be verbal.

Commitment Fee:
(1) A fee paid by a borrower to a lender for the lender’s promise to loan money at a future date. (2) In the secondary market, a commitment fee is a payment by a financial institution to a mortgage buyer, such as Freddie Mac, Fannie Mae, etc., for the buyer’s promise to buy loans at a future date.

Common Stock:
Securities that are evidence of proportionate equity or ownership of a corporation. They give the holder an unlimited proportionate interest in the corporation’s earnings and assets after satisfaction of claims from creditors and the holders of preferred stock.

Common Trust Fund:
The collective investment of fiduciary accounts. Generally includes accounts held by a trustee, executor, administrator or guardian.

Community Reinvestment Act of 1977 (CRA):
Legislation that requires financial institutions to meet the credit needs of all segments of their communities, including low- and moderate-income neighborhoods.

Compensating Balance:
A dollar amount equal to the lowest percentage of a line of credit that the customer of a financial institution is expected to maintain, usually in a demand deposit account, as a condition for being granted a line of credit.

Compound Interest:
The interest that accrues when earnings for a specified period of time are added to the principal, so that interest during subsequent periods is computed on the principal plus all accumulated interest.

Compounding periods:
The compounding period determines how often interest is computed. It is the period (from one day to one year) after which interest is computed and added to principal. This is done for normal (compound interest) and Rule of 78 interest. Unpaid interest under U.S. Rule does not compound but is computed at each payment date and added to a special non-interest-bearing account.

Condominium:
(1) A single dwelling unit in a multi-unit structure in which each unit is individually owned. (2) A form of real estate ownership in which the purchaser receives title to a particular unit in a project and proportionate interest in common areas.

Conforming Loan:
A mortgage loan that conforms to specified limits such as loan-to-value ratio, term, interest rates, or other characteristics. Typically these conform to guidelines established by Freddie Mac, Fannie Mae, or Ginnie Mae.

Conservator/Conservatorship:
An individual or institution the Court or the FDIC appoints to protect and conserve the assets of a troubled financial institution to facilitate liquidation, merger, or replacement of management. A conservatorship affects the control and operation of an institution or company but does not alter its ownership.

Consolidation:
The results obtained when the accounts of a parent company and its majority-owned subordinate organizations are combined to reflect the financial position and results of operations of the group as if operated as a single entity. This involves intercompany eliminations and minority interest adjustments.

Consolidation Loan:
A loan that combines several debts into one loan, usually to reduce the annual percentage rate or dollar amount of payments made each month, by extending them over a longer period of time.

Constant Prepayment Rate (CPR):
The percentage of principal amount of a pool of mortgages that have been or are expected to be prepaid on an annual basis over the life of a pool.

Construction Loan:
A short-term interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals upon completion of certain phases of construction as provided in the loan contract.

Consumer Loan:
Loans to individuals or families where the proceeds are used for consumer purposes, versus business or investment.

Contingency Fund:
Assets or other resources placed aside for unexpected expenditures, or for anticipated expenditures of an uncertain amount.

Contra Account:
An account offset against another account. A contra account to an asset, contra-asset, has a credit balance and a contra account to a liability, contra-liability, has a debit balance. A contra account has no value in its own right and can only be stated in terms of the asset or liability to which it applies. Examples of contra-assets are discounts, deferred loan fees, and accumulated depreciation. An example of a contra-liability is a discount paid for deposits.

Contract Month:
The month in which the futures contract may be fulfilled by making or taking delivery. Most interest rate futures contracts are liquidated prior to the contract month.

Conventional Mortgage:
A mortgage originated by a financial institution without government insurance or guarantee.

Cooperative:
A system of indirect ownership of a single unit in a multi-unit structure. The individual owns shares in a nonprofit corporation that holds title to the building. In turn, the corporation gives the owner a long-term proprietary lease on the unit. Also called a co-op.

Core Capital:
One of three capital standards established for savings associations in 1989. Also known as Tier 1 Capital.

Correspondent Bank:
A bank that is the depository for another depository institution, typically located in another city or marketing area. The correspondent bank provides services such as accepting deposits and collection of loan payments for the other depository institution.

Cost of Capital:
The rate of interest that an association must pay to a third party to borrow money or raise equity capital.

Co-signer:
A person signs a promissory note in addition to the maker, thus becoming responsible for the obligation if the maker should default. A cosigner assumes the liability on a consumer loan without receiving goods, services, or money in return for the obligation.

Cost of Funds:
The interest paid or accrued on savings and borrowings, expressed as a percent of the average total savings and borrowings during a given accounting period.

Coupon:
A tab attached to a bond, which can be torn off and presented to collect an interest payment at a given date.

Coupon Rate:
The rate of interest paid on a particular security. For mortgage-backed securities, the word coupon is customarily used to describe the stated contract interest rate.

Coupon Strips:
Ordinary bonds, typically, U.S. Treasury bonds, purchased and then repackaged so that the rights to interest and principal payments are sold separately. The effect is to transform a regular interest-paying security into zero-coupon securities.

Covered Interest Arbitrage:
Investing dollars in an instrument denominated in a foreign currency and hedging the resulting foreign exchange risk by selling the proceeds of the investment forward for dollars.

Credit:
Any amount that, when posted, will increase the balance of a liability, income, or capital account or decrease the balance of an asset or expense account. Liability, capital, and income accounts normally have credit balances, and asset and expense accounts normally have debit balances.

Credit Enhancement:
Use of an indemnity bond or letter of credit to back a debt issue, thereby substituting the creditworthiness of the guarantor for the borrower's creditworthiness.

Credit Facility:
Any type of loan or credit arrangement.

Credit Rating:
A standardized assessment, expressed in alphanumeric characters, of a company's or individual's creditworthiness.

Credit Risk:
The potential for a borrower to default on all or part of a loan and, consequently, the potential for the value of the loan held by a savings association to decrease.

Credit Scoring:
Statistical analysis used to estimate the creditworthiness of credit applicants.

Cross-hedge:
A hedge transaction whereby the correlation between the two items being hedged is similar but not perfect. For example, hedging a commercial loan with a Ginnie Mae futures contract.

CUSIP Number:
CUSIP stand for the Committee on Uniform Securities Identification Procedures. A CUSIP number identifies most securities, including stocks of all registered U.S. and Canadian companies, and U.S. government and municipal bonds. CUSIP numbers and standardized descriptions are used by virtually all sectors of the financial industry, and are critical for the accurate and efficient clearance and settlement of securities and other financial instruments as well as back-office processing. The CUSIP system is owned by the American Bankers Association and operated by Standard & Poor’s who facilitates the clearing and settlement process of securities. The number consists of nine characters (including letters and numbers) that uniquely identify a company or issuer and the type of security. A similar system is used to identify foreign securities (CUSIP International Numbering System).

D

Damage Assessment:
The post-incident appraisal or determination of actual effects on human, physical, economic, and natural resources.

Data Security:
The securing of safeguarding of electronic information owned by an organization using technology such as security software packages and data encryption devices.

Dealer Reserve Accounts:
Refundable amounts held as collateral in the purchase of installment notes from a dealer. For example, a bank purchases $100,000 in installment notes from a dealer for the full face amount for which it pays $90,000 to the dealer and holds the remaining $10,000 as collateral. The $10,000 held as collateral is a dealer reserve account.

Debenture:
A debt instrument secured only by the general credit of the issuer. A corporate obligation sold as an investment.

Debit:
Any amount that, when posted, will increase the balance of an asset or expense account and decrease the balance of a liability, income, or capital account. Asset and expense accounts normally have debit balances; and liability, capital, and income accounts normally have credit balances.

Debit Card:
An instrument that allows a transaction to post to bank deposit accounts as a withdrawal. On-line settlement requires a Personal Identification Number (PIN) to initiate the transaction.

Debt Securities:
A security representing borrowed funds that must be repaid. Examples of debt securities include bonds, certificates of deposit, commercial paper, and debentures.

Daylight Overdraft:
An intra-day exposure of a bank when an account is in an overdraft position at any time during the business day.

Deed:
A written agreement in proper legal form that conveys title to, or an interest in, real property.

Deed in Lieu:
A deed given by a borrower to a lender to repay a mortgage loan and avoid foreclosure. A deed given in lieu of foreclosure.

Default:
Failure to do what the law requires or to carry out the terms of a contract.

Deferred Expense:
An expense paid before the corresponding benefit is fully received, such as a prepaid insurance premium. For accounting purposes, the expense is recorded as an asset until benefit is obtained, and may be prorated over a number of subsequent accounting periods.

Deferred Income:
Any income received before it is due or before it is earned. Rent paid in advance is an example of deferred income received during one accounting period but earned in a later accounting period. Deferred income is generally recorded as a liability until it is earned, at which time it is taken into income. Interest received in advance is also deferred income; however, instead of being recorded as a liability, interest received in advance offsets the balance of the loan to which it applies.

Deferred Loan Fee:
A loan fee, also referred to as points, typically received at loan closing. Deferred loan fees are considered interest paid in advance. Once the loan is disbursed, the deferred loan fee is reported on the balance sheet as a contra-asset to the loan and is accreted to interest income.

Deficiency Judgment:
A court order that authorizes the collection from the debtor of the part of the debt remaining unsatisfied after foreclosure and sale of collateral.

Delinquency:
Failure to make payment on a debt when due.

Demand Deposit Account:
A noninterest-bearing account from which a depositor may withdraw funds immediately without prior notice. Since funds may be withdrawn on demand in person or by presentation of a check, the account has many of the liquid characteristics of circulating currency.

De Novo Association:
A newly chartered savings association.

Deposit:
Money placed in a depository institution for safekeeping. Includes demand - usually checking - accounts, savings - passbook - accounts, time deposits, negotiable certificates of deposit, money market accounts, etc.

Deposit Broker:
A person or entity engaged in the business of placing funds or facilitating the placement of funds of third parties in accounts issued by a depository institution.

Depository Transfer Checks (DTCs):
A pre-printed, unsigned, restricted-payee instrument used by a company to transfer funds from one of its outlying depository locations to its concentration account.

Depreciation:
The gradual decline in the value of a property over its useful life. Depreciation is recognized through a systematic charge-off of the cost less salvage value over the estimated useful life. It is a bookkeeping entry that does not involve any cash outlay.

Direct Investment:
Investment by banks directly in the equity of a venture, as opposed to investment in a debt instrument. With direct investment, an association actually owns all or part of a venture, rather than loaning money to finance the venture.

Derivative:
A security whose value depends on that of another security or index.

Discharge of Lien:
The recorded release of a lien when debt has been repaid.

Discount:
The difference between the purchase price and face value of a security when the face value exceeds the purchase price. Normally a security sells at a discount when the stated interest rate of the security is less than the current market interest rate. The discount is accreted to interest income over the life of the security, increasing the stated interest rate of the security to the market interest rate at the time of purchase.

Discount Loan:
A loan on which the amount disbursed at closing equals the face amount of the loan less interest that will be earned over the life of the loan, and sometimes miscellaneous charges. The borrower must repay the full-face amount of the loan.

Discount Paper:
Short-term non-interest-bearing securities issued at a price below par. The difference between the purchase price and the amount redeemed at maturity is accreted to interest income over the life of the security.

Discount Rate:
(1) The rate representing the amount of money deducted from the face value of a note. (2) The add-on rate of interest charged to Federal Reserve System member banks for borrowing at the discount window.

Discount Securities:
Short-term noninterest-bearing debt instruments issued at a price below par and redeemed at maturity for full face value; usually short-term such as Treasury bills.

Discount Window:
A “window” available to Federal Reserve System members that allows them to borrow against collateral.

Discounted Cash Flows:
Anticipated net cash receipts from an investment discounted to present value under the theory that cash received in the future has a lesser value than the same amount of cash received today. Several assumptions must be made in this calculation: estimated cash flows, timing of the cash flows, and the discount rate used.

Dividend:
A portion of the net profits the Board of Directors officially declares for distribution to the shareholders. A dividend is paid at a certain rate for each share of stock held by each stockholder, such as, at ten cents per share.

Dividend, Extra:
Distribution of excess profits over and above the regular dividend.

Dividend, Scrip:
A promissory dividend payable in the future. The directors vote to withhold actual cash dividend until a certain future event has taken place.

Dividend, Stock:
A payment of stock in lieu of a cash dividend on a pro rata basis according to the amount of stock held by each stockholder.

Docket Number:
A five-digit number the OTS assigns to each savings association it regulates. The number is used to file and retrieve all financial, organizational, and regulatory data regarding that institution.

Dollar Reverse Repurchase Agreement:
A financial transaction similar to a reverse repurchase agreement in which a dealer loans money by buying a security and agreeing to sell it back to the customer at a higher price at a later date. In a dollar reverse repurchase agreement (dollar reverse repo) the dealer does not sell back the exact same security but another, substantially identical security.

Domestic Building and Loan Association (DBLA):
Defined in the IRS Tax Code as a domestic or federal savings and loan association whose principal business is acquiring savings deposits from the public and investing in loans.

Doubtful Assets:
Those assets that will probably not bring full value upon liquidation.

Down Payment:
A down payment is the cash you deposit towards the purchase of a home, business property, or vehicle. The larger the down payment, the less you need to borrow. For home loans, a down payment of 20% of the home purchase price is generally required to avoid private mortgage insurance. The value of a trade-in vehicle is often used instead of a down payment for purchasing a vehicle.

Dutch Auction:
An auction process in which the price of the goods being sold is lowered in increments until it prompts a bid; used by the U.S. Treasury for pricing new issues.

Duration:
(1) The number of years required to receive the present value of future payments, both interest and principal, from a bond. To determine duration, calculate the present value of the principal and each coupon, and then multiply each result by the period of time before payment is to occur. (2) The concept of duration relates the sensitivity of bond price changes to changes in interest rates.

Drawdown:
A request sent by a company to a bank to initiate a wire transfer from its own or another party's account.

Dwelling Unit
(1) A unified combination of rooms, whether existing or under construction, designed for residence by one family. (2) Living quarters consisting of contiguous rooms providing complete independent facilities for living, eating, cooking, sleeping, and sanitation.

Dwelling Units, One-to-Four:
(1) Single-family dwellings in detached or semidetached structures including manufactured housing. (2) Permanently financed units in a condominium or cooperative arrangement, where the owner of each unit has an undivided proportional interest in the underlying real estate and common elements of the structure. (3) Structures consisting of two- to four-dwelling units.

Dwelling Units, Five or More:
A structure, or structures, containing five or more dwelling units; also referred to as multi-family residential property. This mortgage classification includes:

A single mortgage secured by five or more dwelling units in one structure, or in semi-detached or detached structures.

The construction financing of condominium or cooperative apartments until the construction phase is complete because the units are in structures containing five or more units and are covered by one mortgage.

Fraternity/sorority houses offering sleeping accommodations, living accommodations for students or staff of a college or hospital, and retirement homes with sleeping and eating accommodations that are not condominiums or cooperatives. In these cases, the number of bedrooms in the structure will be the number of dwelling units.

E

Education Loan:
An advance of funds for the purpose of financing a college or vocational education.

Edge Act (1919):
A federal law that permits U.S. banks to invest in corporations located in other geographic areas that engage solely in international banking and finance.

Effective Annual Yield:
Annual yield calculation based on a 365-day year that includes the effect of compounding of interest payments.

Effective Rate:
The actual yield of interest as opposed to the stated rate. For deposits, the effective rate of interest is based on the accounting method used to compute interest and the frequency of compounding. For loans, the effective rate is the stated interest rate plus fees and charges prorated over the life of the mortgage.

Electronic Benefit Transfers:
Government-sponsored programs that distribute benefit payments through Automated Teller Machines (ATMs) and Point of Sale (POS) terminals.

Electronic Check Presentment (ECP):
Electronic transmission of data captured by a check reader/sorter to a drawee bank to effect settlement of a check.

Electronic Commerce (EC):
The exchange of business information from one organization to another in an electronic format in some mutually agreed standard. EC includes unstructured electronic messaging such as facsimile (fax) or electronic mail (E-mail) as well as Electronic Data Interchange (EDI) formats.

Electronic Data Interchange (EDI):
The movement of business data electronically between or within companies (including their agents or intermediaries) in a structured computer-processable data format that permits data to be transferred without re-keying.

Electronic Depository Transfer (EDT):
An ACH transaction used for concentration of funds.

Electronic Federal Tax Payment System:
The primary method that the U.S. government uses to collect taxes.

Electronic Funds Transfer (EFT):
The movement of funds by non-paper means (i.e., electronically), usually through a payment system such as the ACH network or Fedwire.

Electronic Funds Transfer Act (EFTA) (1978):
A federal law that defined the rights and responsibilities of individuals using EFT services.

Electronic Lockbox:
A collection service that records the receipt of incoming wire transfer and ACH payments, reformats the data, and transmits it to the company in whatever format it desires.

Eligible Banker's Acceptance (BA):
A BA with a term of 180 days or less that may be discounted at the U.S. Federal Reserve Bank.

Employee Stock Option Plan (ESOP):
An employee benefit where employees receive as compensation equity shares (stock) of the employer. Stock acquired for this purpose by a loan or guarantee of the employer is transferred to a trust. The loan is then typically paid off through dividends received on the stock and through additional contributions from the employer.

Encryption:
A process which electronically scrambles a message so that only persons who have compatible decryption hardware and/or software can interpret the message.

Equity Investment:
Investment in the ownership of property or a business where the investor’s profit depends on the profit of the underlying investment. The investor may receive a specified rate of return dependent on the profit of the underlying investment.

Equity Kicker:
Added to a stated rate of return, the investor participates in the profits of the underlying investment.

Equity Loan:
A loan that uses the borrower’s equity in real property as collateral; also called a home equity loan. The loan may be for a variety of purposes. It is typically an open-ended second or junior mortgage loan.

Equity Method:
A method of accounting for an equity investment in another company or joint venture. The carrying value of the investment reflects a share of the acquired firm’s increases (or decreases) in retained earnings. Example: If bank (A) purchases 20% of bank (B’s) stock and bank (B) earns $3 million after taxes during the next year, bank (A) will increase the carrying value of its investment by 20% of $3 million, or $600,000. If bank (B) pays half of its earnings in cash dividends, bank (A) will decrease its investment by $300,000.

Equity to Assets Ratio:
Total equity divided by total assets. This ratio provides information on the proportion of total assets provided by shareholders, owners, on any given date. A high equity ratio may indicate the existence of a protective buffer in the event the company suffers a loss.

Equity to Liabilities Ratio:
Total equity divided by total liabilities.

Escrow:
A written agreement under which funds transferred from one party to another are placed with a third person or entity, usually a depository institution, acting as custodian. The custodian completes the transfer to the second party only upon the fulfillment of certain specified conditions. For purposes of the calculation of deposit insurance premiums, escrows are included as deposits.

Eurobond:
A bond issued for release by a U.S. or other non-European company or government for sale in Western Europe. In that market, corporations and governments normally issue medium-term securities with maturities of 10 to 15 years.

Eurodollars:
Deposits denominated in U.S. dollars at banks and other financial institutions outside the United States. Although this name originated because of the large amounts of such deposits held at banks in Western Europe, similar deposits in other parts of the world are also called Eurodollars.

EWP:
Early withdrawal penalty. A penalty for withdrawing funds from a time savings account prior to a stated date.

Evaluated Receipts Settlement (ERS):
A payment method designed to eliminate the need for a supplier to provide an invoice to the customer.

Event of Default:
The breaching or violation of any term, covenant, or condition in a debt agreement by a borrower.

Excess Bank Balances:
Average collected balances in a company's bank account above the average required for bank compensation, or above the level a company has chosen to maintain at a bank.

Excess Loan Servicing:
(1) An asset established prior to FASB Statement No. 125 when loans were sold to yield a different rate than their contractual rate and the seller retained servicing. (2) The present value of the difference between the amount to be collected from the borrower and the amount to be paid to the purchaser of the loans. (The point spread differential less normal servicing costs represents the excess servicing amount that is recorded at the time of sale, increasing the gain or decreasing the loss on the sale.)

Exercise:
To execute the right granted under the terms of a contract. To exercise a call, holders exchange the call option position for a long futures position. To exercise a put, holders exchange the put option position for a short position in T-Bond futures.

Eximbank:
The Export-Import Bank of the U.S. is an independent agency of the U.S. government established to finance and guarantee payment for U.S. exports.

Expedited Funds Availability (1988):
A federal law that defined maximum funds availability time periods and established return procedures for checks and payable through drafts, etc.

Extranet:
A wide area network (WAN) in which two or more organizations share information using Internet protocols with access limited to the participants.

Expense:
The costs of resources used to create, or intended to create, revenues.

F

Face Value:
The sum of money denoted on the principal or “face” side of a financial instrument representing: (1) the amount of money the issuer promises to pay at maturity and (2) the amount on which interest is computed.

Factoring:
The sale or transfer of title of the accounts receivable to a third party (factor).

Factors:
Financial companies that purchase or manage other companies' receivables.

Fair Market Value:
The price at which property transfers from a willing seller to a willing buyer, each of whom has a reasonable knowledge of all pertinent facts concerning the property in question and similar properties on the market, and neither being under any compulsion to buy or sell.

Fannie Mae Pool:
Mortgage-backed security that represents a proportional undivided ownership interest in a pool of mortgage loans where the full and timely payment of principal and interest is guaranteed by Fannie Mae.

Farmers Home Administration:
A federal government agency that finances and insures loans to farmers and other qualified borrowers for rural housing and other purposes.

Federal Deposit Insurance Corporation (FDIC):
A government corporation that insures deposits in savings associations and commercial banks. The FDIC administers the Savings Association Insurance Fund, SAIF, providing deposit insurance to savings associations, and the Bank Insurance Fund, BIF, providing deposit insurance to commercial banks.

Federal Deposit Insurance Corporation Improvement Act (FDICIA) (1991):
A federal law that established standards for financial institution safety and soundness, mandated the FDIC to declare insolvent any bank or thrift that failed to maintain certain levels of capital adequacy, and required the FDIC to charge deposit insurance premiums on a risk-adjusted basis.

Federal Funds:
Overnight, unsecured loans of funds between banks. Generally considered as funds that are immediately available and invested only for one business day, they are typically treated as cash equivalents. Federal funds can be bought and sold for periods ranging from 10 to 90 days and thus referred to as term federal funds transactions.

Federal Housing Administration (FHA):
The FHA is a division of the Department of Housing and Urban Development whose activities include insuring residential mortgage loans under a nationwide system. This enables lenders to loan a higher percentage of the value of the underlying property. FHA loans generally require a down payment of not less than five percent of the original amount of the loan.

Federal Home Loan Banks (FHLBs):
Twelve regional banks of the Federal Home Loan Bank System that provide credit to banks.

Federal Home Loan Bank Board (FHLBB):
A former independent agency in the executive branch of the federal government that regulated and supervised the savings and loan industry, the Federal Home Loan Banks, the Federal Savings and Loan Insurance Corporation, and the Federal Home Loan Mortgage Corporation.

Federal Home Loan Bank System:
The group made up of the Federal Housing Finance Board, twelve regional Federal Home Loan Banks, and member savings associations. The fundamental purpose of the System is to serve as a central credit facility for member associations.

Federal Home Loan Mortgage Corporation (Freddie Mac):
A stockholder-owned corporation chartered by Congress in 1970 to keep money flowing to mortgage lenders in support of homeownership and rental housing. Freddie Mac purchases single-family and multifamily residential mortgages and mortgage-related securities, which it finances primarily by issuing mortgage pass through securities and debt instruments in the capital markets. Freddie Mac buy mortgages from commercial banks, thrift institutions, mortgage banks, and other primary lenders, and either hold these mortgages in their own portfolios or package them into mortgage-backed securities for resale to investors.

Federal Housing Finance Board (FHFB):
An independent agency in the executive branch of the federal government that replaced the FHLBB in its authority to govern the Federal Home Loan Bank System. 

Federal National Mortgage Association (Fannie Mae):
In 1938, the Federal Government established Fannie Mae to expand the flow of mortgage money by creating a secondary lending market. Fannie Mae is authorized to buy Federal Housing Administration (FHA)-insured mortgages, VA, and conventional loans and issuing mortgage-backed securities.

Federal Open Market Committee:
The 12-member committee that implements the Fed's monetary policy through open market operations.

Federal Reserve Board:
The seven governing members of the Federal Reserve System who are appointed by the President of the U.S. for 14-year terms. Board members play an important role in determining the country’s monetary policy, which, in turn, strongly influences economic activity.

Federal Reserve System:
The system of independent central banks that influences the United States’ money supply and credit through its control of bank reserves. Federal Reserve actions impact security prices. For example, restriction of bank reserves and lending ability in an attempt to restrain inflation tends to drive up interest rates and drive down security prices over the short run.

Federal Savings & Loan Insurance Corporation (FSLIC):
A government corporation the National Housing Act established in 1934 that insured deposit accounts in federal savings associations, federally chartered national savings banks, and state-chartered savings associations that were members of the Federal Home Loan Bank System. Under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989, the Savings Association Insurance Fund, SAIF, replaced the FSLIC as an insurer. All assets and liabilities of FSLIC were transferred to the FSLIC Resolution Fund.

Fedwire:
The same-day value electronic funds transfer system operated in the U.S. by the Fed.

Fiduciary:
Someone who is entrusted with the care of another person's money, property or other items of value. Acting in a fiduciary capacity generally includes acting as a trustee, executor, administrator, registrar of stocks and bonds, transfer agent, assignee, receiver, guardian or conservator of the estate of a minor or incompetent, investment adviser, any capacity in which you possess investment discretion on behalf of another, or any other similar capacity.

Financial Electronic Data Interchange (FEDI):
A type of Electronic Data Interchange (EDI) in which financial information is transferred including electronic format for invoices, initiation of payments, lockbox deposit reports, and remittance information.

Financial Impact:
An operating expense that continues following an interruption or disaster, which as a result of the event cannot be offset by income and directly affects the financial position of the organization.

Finance Subsidiary:
A savings association’s subsidiary whose sole purpose is to issue securities, typically preferred stock or mortgage-backed securities, that the parent itself is authorized to issue directly - or, if the parent is a mutual association, is authorized to issue if it converted to the stock form - and to remit the net proceeds of such securities to its parent association.

Financial Accounting Standards Board (FASB):
An accounting organization established in 1973 that is responsible for establishing generally accepted account principles (GAAP). FASB is a self-regulated organization whose impact affects accounting firms and practitioners.

Financial Futures:
A futures contract based on financial instruments or indices.

Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA):
An act of Congress to reform, recapitalize, and consolidate the federal deposit insurance system, and to enhance the regulatory and enforcement powers of federal financial institutions’ regulatory agencies. FIRREA established the Office of Thrift Supervision (OTS), the Federal Housing Finance Board, the FSLIC Resolution Fund, the Resolution Trust Corporation, and the Resolution Funding Corporation. FIRREA dissolved the Federal Home Loan Bank Board (FHLBB) and Federal Savings and Loan Insurance Corporation (FSLIC).

First Mortgage:
A mortgage that creates a lien against real property. A first mortgage has first priority against other claims in the event of foreclosure. Also called a senior or first lien.

Fiscal Year:
Any consecutive 12 months designated as the time frame for financial reporting and preparation of balance sheets, profit and loss statements, and other financial summations.

Fixed Assets:
Those tangible assets, such as office buildings, furniture, fixtures, and equipment, used in the operation of a business that are not intended to be sold in the normal process of the business.

Fixed-rate Mortgage:
A mortgage in which the interest rate and the amount of each interest and principal payment remain constant throughout the life of the loan.

Float:
Time interval, or delay, between the start and completion of a specific phase or process that occurs along the cash flow timeline. Certain types of float can be quantified and expressed in dollar mounts.

Floating-rate Securities:
A security whose interest rate varies or floats in relation to a specific index or benchmark, such as the rate on Treasury securities, LIBOR, etc.

Floating-rate Tranches:
CMO tranches that have rates that adjust in the same direction, and by the same amount, as an index such as LIBOR.

Floor Planning
Commercial loans that finance automobile or mobile home floor stock (dealer inventory).

Forbearance Agreement:
A verbal or written agreement providing that the savings association will delay exercising its rights in the case of a mortgage loan foreclosure as long as the borrower performs certain agreed-upon actions.

Foreclosure:
Legal process protecting the mortgagee should the mortgagor default on the mortgage, whereby the mortgagee obtains title to the collateral.

Foreign Exchange Rate:
The price of one currency denominated in another currency such as the value of British pounds expressed in U.S. dollars.

Foreign Tax Credits:
Tax credits U.S. companies can take against domestic taxes for those taxes paid to foreign governments.

Forward Commitment or Forward Commitment Contract:
Agreement between a buyer and seller to purchase or sell a specified amount of mortgages or securities at an agreed-upon price, and at a specified future date. Sometimes called a forward delivery contract or forward coverage.

Forward Delivery:
Delivery of loans or securities to be made at a future date.

Freddie Mac Participation Certificate (PC):
A mortgage-backed security, guaranteed by the Federal Home Loan Mortgage Corporation as to the timely payment of interest at the certificate rate and the ultimate collection of principal, which represents a proportional undivided ownership interest in a pool of mortgage loans. Generally, each PC group contains fixed-rate equal installment conventional residential mortgage loans with original terms to maturity of between 10 and 30 years.

FSLIC Resolution Fund:
A fund FIRREA established to assume all the assets and liabilities of FSLIC. The RTC managed the FSLIC Resolution Fund. The RTC was dissolved in December 1995, upon the satisfaction of all debt and liabilities and the sale of all assets assumed by it.

Funded Debt:
Debt that is usually long-term, for which certain assets have been set aside to satisfy the debt.

Futures Call Option:
An option contract that gives the buyer the right to assume a long T-Bond futures position at a fixed strike price any time prior to the contract’s expiration date. When assigned, a call option seller automatically assumes a short futures position.

Futures Contract:
An agreement to take (by the buyer) or make (by the seller) delivery of a specific commodity on a particular date. The commodities and contracts are standardized so that an active resale, secondary, market will exist. Futures contracts are available for a variety of items including grains, metals, and foreign currencies.

Futures Price:
The price of a contract for delivery of a specific dollar amount of a standardized financial instrument in a designated future month.

Futures Put Option:
An option contract that gives the buyer the right to assume a short T-Bond futures position, at a fixed strike price, any time prior to the contract’s expiration date. When assigned, a put option writer automatically assumes a long futures position.

G

Gap:
The imbalance between the maturities (or repricing) of assets and liabilities of a financial institution; a measure of that imbalance. Gap refers to a specific time interval, such as a 30-day gap, which is the degree to which assets repricing within 30 days exceed or fall short of liabilities repricing in 30 days.

Garn-St. Germain Depository Institutions Act (1982):
A federal law that established lending limits of banks, allowed the FDIC to arrange mergers of banks in different states, and allowed banks to offer accounts that would offer rates of interest comparable to money market mutual funds.

General Valuation Allowance:
A contra-asset established against receivables and investments based on the amount expected to be collected. General valuation allowances are established for the purpose of covering probable but not specifically identifiable credit losses.

Generally Accepted Accounting Principles (GAAP):
The basic principles of accounting promulgated either through authoritative sources such as the Financial Accounting Standards Board (FASB), the American Institute of Certified Public Accountants (AICPA), or, if no written standards exist, through widespread common practices.

Government National Mortgage Association (Ginnie Mae):
A wholly owned U.S. government corporation, known as Ginnie Mae, which is part of the Department of Housing and Urban Development (HUD) with the purpose to serve low-to moderate-income homebuyers. Ginnie Mae guarantees the timely payment of principal and interest on mortgage-backed securities that represent an interest in a pool of mortgages insured by the VA or FHA, and are backed by the full faith and credit of the United States government.

Ginnie Mae Certificates:
Mortgage pass-through securities with the full and timely payment of principal and interest guaranteed by Ginnie Mae. A Ginnie Mae certificate represents a proportional, undivided ownership interest in a pool of fixed-rate mortgage loans. Also known as Ginnie Mae Pools.

Goodwill:
The premium exceeding fair value of net identifiable assets of an acquired association in a purchase business combination.

Government Sponsored Enterprise (GSE):
Privately owned corporations supervised by the U. S. Government. GSEs include Fannie Mae and Freddie Mac who are supervised by the Office of Federal Housing Enterprise Oversight (OFHEO), a part of HUD. Federal Home Loan Banks are also GSEs and are supervised by the Federal Housing Finance Board.

Guarantor:
A guarantor does not sign the loan note, and to become liable for the debt, a bank must exhaust all other means of collection from the original borrowers.

Grace Period:
Permits repayment of principal beginning at some specified future date. For example, an eight-year loan with a two-year grace period would mean that principal payments would not commence until the third year of the loan.

Graduated-payment Adjustable Mortgage Loan (GPAML):
A graduated payment mortgage that has a variable interest rate. The initial scheduled payment is insufficient to pay all the interest due. The unpaid interest increases the principal of the loan and the scheduled payments increase over the term of the loan so the loan will fully amortize at maturity.

Graduated-payment Mortgage (GPM):
A graduated payment mortgage with a fixed interest rate. The initial payment is lower than that on a standard fixed-rate mortgage and is insufficient to pay all the interest due. The unpaid interest increases the principal of the loan and the scheduled payments increase over the term of the loan so the loan will fully amortize at maturity.

Grandfather Clause:
Any condition that ties existing rights or privileges to previous or remote conditions or acts. More popularly used when a new regulation goes into effect, to exempt associations already engaged in the activity being regulated.

Gross:
The total amount before any deductions.

Gross Income:
Total income before deducting expenses.

Guaranteed Student Loans:
Education loans primarily made by banks, savings and loan associations, and credit unions, and some colleges, payment of which is guaranteed by the federal or state government.

H

Hazard Identification:
The process of identifying situations or conditions that have the potential of causing injury to people, damage to property, or damage to the environment.

Hedging:
The matching of assets to liabilities of a similar nature; the assumption of one risk calculated to offset another. The buying or selling of offsetting positions to protect against an adverse change in price or interest rates. In mortgage banking, the purchase or sale of mortgage futures contracts to offset cash market transactions to be made at a later date.

High Dollar Group Sort (HDGS):
A program of the Federal Reserve to expedite the processing of high-dollar checks through the system.

Holding Company:
A corporation or other entity that owns a majority of voting stock or securities of another corporation, thus obtaining control of the other corporation.

Home Equity Loan:
Revolving, open-end loans secured by a one- to four-family property and extended under lines of credit. Although residential property secures home equity loans, in some cases they may not have an appraisal meeting OTS standards, or may not have a sufficient loan-to-value level and, thus, are classified as a non-mortgage loan.

Home Improvement Loan:
A loan usually not secured by a recorded lien on the property and usually short-term, made to a property owner for such improvements as maintenance and repair, additions and alterations, or replacement of equipment or structural elements.

Home Loan:
A residential mortgage loan secured by a one- to four-family property.

Home Mortgage Disclosure Act (HMDA):
A law that requires the annual disclosure of mortgage loan data by depository institutions, service corporations, and mortgage banking subsidiaries located in metropolitan statistical areas. Institutions subject to the Act are required to disclose data on all mortgage loans and home improvement loans that they originate and purchase each year.

Homeowners Insurance:
Also called property insurance, homeowners insurance protects the homeowner from weather-related damage, as well as potential liability from events that occur on the property. Lenders require homeowners insurance coverage to protect the collateral that secures their loan. Some homeowners insurance policies do not cover catastrophic events such as tornadoes, hurricanes or floods. These kinds of events generally require a separate insurance policy.

Housing Ratio:
Lenders use housing ratio to approve loan applicants. Housing ratio equals combined monthly mortgage payment divided by gross monthly income. For example, a combined monthly mortgage payment of $1,500 divided by gross monthly income of $4,500 equals a housing ratio of 33%.

Hot-site:
A data center facility with sufficient hardware, communications interfaces and environmentally controlled space capable of providing relatively immediate backup data processing support.

Hybrid Lockbox:
A collection system that has characteristics of both retail and wholesale lockboxes and can process both consumer and company-to-company mail receipts. Sometimes referred to as a whole-tail lockbox.

Hypothecated Deposit:
Deposits accumulated until the sum of the payments equals the entire amount of principal and interest on the contract, at which time the loan is considered paid in full. Typically state law determines the handling of hypothecated deposits. In reporting Schedule SC, you should net hypothecated deposits against the related loans.

I

Impact Analysis:
A pre-incident study to estimate the effect that specific incidents can have on an entity’s operations or activities.

Incident Command System (ICS):
The combination of facilities, equipment, personnel, procedures, and communications operating within a common organizational structure with responsibility for the management of assigned resources to effectively accomplish stated objectives pertaining to incident as described in the document, Incident Command System.

Income:
Money or its equivalent, earned or accrued, arising from the sale of goods or services.

Income Tax:
A tax on annual earnings and profits of a person, corporation, or organization. Traditionally, there are federal, state, and city taxes, although not all states and not all cities tax income.

Index:
A price indicator such as LIBOR or T-Bill rates. The repricing of the interest rate on an adjustable rate mortgage is typically governed by an index rate. Rate movements of the mortgage are adjusted to correspond to movements in the index. The index rate generally is a published interest-rate series that is readily verifiable by the borrower and not under the control of the lender.

Individual Retirement Account (IRA):
Special accounts where you can save and invest, where the taxes generally are deferred until money is withdrawn. These plans are defined by statute and are subject to frequent changes by Congress. Withdrawals of tax-deferred contributions are generally taxed as income, including the capital gains from such accounts. Withdrawal prior to a specified retirement age or for purposes other than those specified by law may be subject to a tax penalty. Types of IRAs include Keogh Plans, Roth IRAs, and Education IRAs.

Initial Interest Rate:
The starting interest rate on an adjustable-rate mortgage loan, which is often below market ARM rates. The intent of a low initial rate is to assist homebuyers that may not otherwise qualify for a mortgage loan.

Initial Margin:
The amount of deposit a broker initially requires to purchase securities on behalf of an investor.

Insolvent:
(1) A condition in which the value of liabilities exceeds the value of assets according to some accounting standard such as generally accepted accounting principles (GAAP). That is, net worth, or capital, is negative. (2) The state of being unable to pay debts when demanded by creditors at maturity.

Installment:
The regular, periodic payment to repay a debt that a borrower agrees to pay.

In-substance Foreclosure:
A situation in which the lender considers the collateral underlying a loan repossessed in substance by the lender and accounts for it at its fair value, consistent with generally accepted accounting principles (GAAP). In-substance foreclosure occurs when the debtor formally or effectively abandons control of the collateral to the creditor.

Interest:
A fee paid for using money that belongs to another, usually expressed as an annual percentage of the amount used. A financial institution makes periodic payments of interest to savers for the use of their deposited funds. A borrower pays interest on a loan to the financial institution for the use of its funds.

Interest Rate Cap:
A limit on the amount the interest rate can increase. A periodic cap limits how much the rate can increase at each adjustment period. A lifetime cap limits how much the rate can increase during the term of the loan.

Initial Interest Rate:
The starting interest rate on an adjustable-rate mortgage loan, which is often below market ARM rates. The intent of a low initial rate is to assist homebuyers that may not otherwise qualify for a mortgage loan.

Interest-only (I/O) Strip:
The interest portion of a security (debt security or mortgage security). The owner of an IO strip receives only the interest payments of the security. The owner of an IO strip of a mortgage pool security receives only the interest payments on the cash flow of the underlying mortgages.

Interest Rate Floor:
Minimum interest rates for a loan or variable-rate security.

Interest-rate Collar:
(1) A contractual agreement that limits the interest paid or received if the interest rates increase or decrease by a predetermined number of percentage points. (2) A two-sided cap.

Interest-rate Swaps:
A transaction that involves two parties exchanging their interest payment obligations - no principal is exchanged - on two different kinds of debt instruments, one bearing a fixed interest rate and the other a floating interest rate. If a savings association has fixed-rate assets and floating-rate liabilities, it typically will swap its floating rate payment for a fixed-rate payment to match liability repricing to asset repricing.

Internal Rate of Return:
A calculation of the return of a project or capital investment found by setting the net present value (NPV) of cash inflows equal to zero.

Internet:
A Wide Area Network (WAN) to which anyone with the appropriate hardware, software, and communication links has access.

In-the-Money:
An option with a favorable price opportunity. The strike price is less than market for a call and above the market for a put.

Intranet:
A Local Area Network (LAN) or Wide Area Network (WAN), typically belonging to one company, that uses the open standards of the Internet rather than proprietary software for communication among computers.

Intrinsic Value:
The amount by which an option is in-the-money. For call options, it is the current T-Bond futures price minus the strike price if the difference is a positive number. For put options, it is the strike price minus the current price of T-Bond futures if the difference is a positive number.

Inverse Floater:
An asset that adjusts in the opposite direction of the movement of interest rates. Generally the inverse floater adjusts by a multiple of an interest-rate index. It is usually repriced based on a formula containing a multiple of the LIBOR rate. For example, if an inverse floater adjusts at an inverse of 1.25 times LIBOR, a decrease of two basis points in LIBOR would result in an increase in the rate of the inverse floater of 2.5 (2 x 1.25) basis points.

Inverse-floating Rate Tranches:
CMO tranches that have adjustable rates that adjusts in the opposite direction as an index such as LIBOR. Frequently, the rate adjusts by a multiple of the change in the index.

Investment:
The use of capital to create more money, either through income-producing vehicles or through more risk oriented ventures designed to result in longer term capital gains.

Investment Accounts:
Accounts that range from short-term, highly liquid securities, such as U.S. Treasury Bills, to long-term railroad equipment trust certificates that are not always liquid. In between, there are debentures, floaters, notes, put bonds, and cushion bonds, along with a broad array of short-term money market instruments. Investment accounts may be trading accounts, available-for-sale, or held-to-maturity.

I/O Strip:
Interest-only strip. The interest portion of a security (debt security or mortgage security).

J

Joint Venture:
Any joint undertaking between two or more parties in such legal form as joint tenancy, tenancy in common, partnership, or a corporation.

Judgment:
A formal decision given by a court. A judgment against a property is generally a lien against the property.

Junior Lien:
A lien that is subordinate to the claims of prior lien(s) or mortgage(s).

Junk Bonds:
Bonds issued by companies without long track records of sales and earnings. These bonds are more volatile and pay higher yields than investment-grade bonds.

K

Kiting:
Check kiting may occur in a variety of ways and involve numerous financial institutions. The underlying premise for check kiting is a customer’s ability to gain access to deposited funds before they are collected from the financial institution in which they are drawn. However, drawing against uncollected funds in and of itself does not necessarily indicate kiting. Kiting only occurs when the aggregate amount of drawings exceeds the sum of the collected balances in all accounts. To combat check kiting, financial institutions need to ensure that the effectiveness of internal controls and reports used to identify suspicious check activity are periodically monitored and/or audited.

L

Land Loan:
Loan for unimproved land, developed building lots, and the acquisition and development of land.

Ledger Balance:
Balance in a bank account that reflects all items that have been deposited or cleared through the account.

Letter of Credit:
A document issued by a financial institution on behalf of its customer authorizing a third party, or in some cases the customer, to draw drafts on the institution up to a stipulated amount and with specified terms and conditions. The letter of credit is a conditional commitment, except when prepaid by the customer, on the part of the institution to provide payment on drafts drawn in accordance with the terms of the document.

Liabilities:
Debts incurred but not paid. For savings associations, liabilities consist of deposits, borrowings including long-term debentures, and other liabilities.

LIBOR:
London Interbank Offered Rate. An international interest-rate index, similar to the federal funds rate of banks in the United States. It is commonly used as a repricing index for various financial instruments such as ARMs, CMO tranches, and interest-rate swaps.

Lien:
A claim by one person or entity on the specific property of another and that serves as security for a debt. The security interest in real estate created by a mortgage. A lien is typically recorded in the legal jurisdiction (county) in which the property is located.

Line of Credit:
A pre-established loan authorization with a specified borrowing limit extended by a lending institution to an individual or business. Most lines of credit are unsecured; however, certain lines of credit, such as home equity loans, are secured by the borrower’s equity in property. A line of credit allows borrowers to obtain a number of loans without re-applying each time as long as the total of borrowed funds does not exceed the pre-established credit limit.

Liquidation:
Closing a savings association by paying the claims of insured depositors and other secured creditors. Liquidation may be a voluntary decision made by the board of directors, or may be mandated and executed by the FDIC.

Liquidity:
The amount an entity holds in cash and other assets quickly convertible into cash without significant loss.

Loan:
Money advanced by one entity to another to be repaid within a specified time, typically with a specified rate of interest, as set forth in a note or other evidence of indebtedness. Loans may be unsecured or secured by real or personal property but do not represent an equity interest in the underlying security for the lender.

Loan Loss Reserve:
A contra-asset set up to compensate for anticipated losses from loans.

Loan Origination:
The steps a lending institution takes to obtain a borrower and underwrite a loan up to the time a loan is booked, including soliciting, processing applications, appraising, and closing.

Loan Origination Fee:
The initial service charge that a lending institution imposes on a borrower for underwriting a loan.

Loan Participation:
(1) The purchase of portions of outstanding loans by investors, who then participate on a pro rata basis in interest and principal payments; (2) a loan or package of loans in which two or more lenders share ownership.

Loan Portfolio:
The total loans held by a financial institution or other lender, at a given time.

Loans-in-process:
Loans that an association closed, but the full principal of which has yet to be disbursed. Generally, these are construction loans that are typically disbursed in stages as construction is completed. The full amount of a loan is recorded on the savings association’s books at closing, with the undisbursed portion recorded in the contra-asset account called loans-in-process. Report loans on the TFR net of loans-in-process.

Loan to Facilitate:
A mortgage loan in which the lender provides a borrower with funds at a high loan-to-value ratio and/or below-market interest rates to facilitate the borrower’s acquisition of a piece of property owned by the lender.

Loan Syndication:
The process whereby a group of financial institutions extends a credit facility to a borrower.

Lockbox:
A collection system in which a bank or a third party receives, processes, and deposits a company's mail receipts. Also known as a lockbox processor.

Lockbox Networks:
Collection systems that offer multiple locations to receive customer remittances through one organization.

Long:
(1) As a noun, one who has bought futures contracts and has not yet offset that position. (2) As an adverb -going long - the action of taking a position in which one has bought futures contracts without taking the offsetting action. The long protects against declining rates of interest.

Long-term, Fixed-rate Tranches:
CMO tranches that have fixed rates and are expected to mature in five years or more.

Long-Term Liabilities:
Obligations that are expected to be settled beyond one year or a normal accounting cycle.

Long-term Planned Amortization Classes (PACs):
CMO tranches that have fixed rates, a prioritized repayment schedule within certain prepayment speeds, and expected maturity of more than five years. Targeted Amortization Classes (TACs) are considered to be substantially similar to PACs for reporting purposes.

Long-term PAC Support Tranches:
CMO tranches that have fixed rates, expected maturity of more than five years, and are part of a CMO structure that contains a PAC or TAC tranche(s).

Loss:
(1) The amount of all expenses exceeding revenues for a period or for a transaction. (2) A classification of assets under OTS regulations where recovery is unlikely.

Lower-of-Cost-or-Market (LOCOM):
An accounting method used to establish the amount at which certain assets are recorded. The amount established is the lower of the cost of the asset or the current market value. Under this method, assets must be written down if the market value falls below amortized cost but the asset may never be written up to a market value above amortized cost.

Loan-to-value (LTV) Ratio:
Homes: Loan-to-value ratio is a key factor in determining how much of a home you can qualify for. To calculate, divide the mortgage loan amount by the fair market of the home value. A recent appraisal is generally required to determine fair market value. If you have existing mortgage debt or are adding debt, divide the combined mortgage balance by the home value. For example, a mortgage loan of $150,000 on a home that is appraised at $200,000 has an LTV of 75%. As a general rule, mortgage loans that exceed an LTV of 80% require private mortgage insurance.


M

Magnetic Ink Character Recognition (MICR) Line:
The lower part of a check, deposit ticket, or other item, that contains the special character information necessary to read the item by electronic scanning.

Maintenance Margin:
Additional assets required by a broker on a margin account due to decreases in the market value of the securities that guarantee the margin account. 

Majority Stockholders:
Stockholders whose share of voting stock is so large those they can exercise control over the corporation. Generally, an ownership of 20% or more is deemed to constitute control.

Majority-owned Subsidiary:
A subsidiary whose parent company, or parent’s majority-owned subsidiaries, owns more than 50 percent of the outstanding voting capital stock.

Mandatory Convertible Securities:
Subordinated debt instruments that are eventually transformed into common or perpetual preferred stock within a specified period of time. Generally, there are two types: (1) equity contract notes - securities that oblige the holder to take common or perpetual preferred stock of the issuer in lieu of cash for repayment of principal; and (2) equity commitment notes - securities that are redeemable only with the proceeds from the sale of common or preferred stock.

Mandatory Delivery:
A lender’s commitment to deliver loans or securities or pay a penalty.

Margin:
(1) The amount of deposit money that a securities broker requires from an investor to purchase securities on credit. (2) An amount of money or securities deposited by buyers and sellers of futures contracts and short options to ensure performance of the contract terms, such as, the commitment to make or take delivery of the commodity or the cancellation of the position by a subsequent offsetting trade at such price as can be attained. Margin in commodities is not a payment of equity or down payment on the commodity itself, but rather is in the nature of a performance bond or security deposit.

Market Makers:
Individuals or firms who will quote both a bid (buying) and an offered price (selling) for a financial instrument or other type of asset.

Mark-to-Market:
An accounting procedure by which assets are recorded at current market value, which may be higher or lower than their purchase price or book value. Examples of the use of mark-to-market accounting are: purchase accounting, pushdown accounting, and accounting for certain securities.

Market Value:
(1) The price established in a competitive market where buyers and sellers meet to buy and sell similar products. (2) A price determined by supply and demand factors rather than by management. (3) The price at which an owner is prepared to sell and an unrelated buyer is willing to buy.

Marketable Title:
Title to property that is free from a claim, lien, charge or defect and that will not be subject to legal objection. Also known as perfect title, clear title, and good title.

Maturity:
The date on which the principal balance of a debt becomes due and payable. The date when a debt is paid in full.

Maturity Mix:
The variety of assets found in an investment portfolio that vary in terms of length, such as 90-day Treasury bills, 20-year corporate bonds, etc.

Master Note:
A type of promissory note used for loans with multiple advance features such as lines of credit and revolvers.

Memo Posting:
Posting an ACH credit or debit early in the day when the actual credit or debit will not be posted until later in the day.

Merger:
The combining of two or more entities either through one purchasing the assets and liabilities of the other(s) or the pooling or combining of two or more entities into one new entity.

Minority Interest:
The portion of net worth of a subsidiary relating to shares not owned by the controlling company or other members of the combined group. Example 1: A parent owns 75% of the controlling interest in Company B; therefore, there is a 25% minority interest in Company B. Example 2: A parent owns 50% of the voting stock of Company B and 100% of Company C; Company C owns 25% of Company B. Therefore, the parent effectively controls 75% of Company B and there is a 25% minority interest in Company B.

Mitigation:
Activities taken to eliminate or reduce the degree of risk to life and property from haz