Banks as Financial Intermediaries

Taxes Payable

all federal, state, and local taxes due.

Loans and Lease Financing

all indebtedness to the bank, usually subdivided by category.

Matched Funding

an asset and liability management technique in which assets ate financed with liabilities of the same maturity of duration.

De Novo Bank

A bank that has been in operation for 5 years or less. Commercial banks operating for 5 years or less that convert to Federal Reserve membership are subject to the De Novo bank application and supervision standards.

Correspondent Bank

A bank, often a larger bank, that maintains an account relationship or engages in an exchange of services with another, usually smaller, bank.

Liability

A debt; something disadvantageous

Income Statement

A financial statement showing the revenue and expenses for a fiscal period.

Balance Sheet

A financial statement that reports assets, liabilities, and owner's equity on a specific date.

Consumer Price Index

A measure of the average change over time in the prices paid by consumers for selected goods and services.

Lease Financing

A specialized area of finance dealing with renting property owned by a lender, financing the leases of a company engaged in rentals. or financing the purchase of an item to be leased out by the borrower.

Ratio Analysis

A technique for analyzing a financial statement that examines the relationships between certain values reported in the statement.

Discount Operations(Rate)

A tool of monetary policy in which banks borrow funds from the Federal Reserve. These loans, priced at the discount rate, help reduce liquidity problems for banks and maintain stability of financial markets.

Trust

Administrators trusts and trust-related activities for individuals and businesses.

Certified Public Accountant (CPA)

An accountant licensed to practice public accounting. To earn this title, a person must pass the Uniform Certified Public Account Exam and meet other requirements established by each state for education and experience.

Audit

An official examination and verification of accounts and internal controls, usually by an independent accountant, to determine whether financial information is accurate and prepared in conformity with generally accepted accounting principles.

Treasury Notes and Bonds

Longer-term securities, they have maturities of between 2 and 10 years, in the case of Treasury notes, and 30 years in the case of Treasury bonds.

Federal Funds

Excess reserves that banks deposit at Federal Reserve Banks and are made available for other banks to borrow generally for a very short period of time such as overnight.

Securities

Financial instruments such as stocks or bonds that have value and are easily bought and sold between parties.

Marketing and Sales

Identifies potential customers, learns what they want, and devises strategies for promoting and delivering the bank's products and services to its market area.

Peer Group

In banking a statistical grouping of banks that have similar characteristics.

Noninterest Income

Income a bank derives form sources other than interest, for example, fee and service charges, trading income, and investment securities gains.

Audit and Loan Review

Make sure the bank is safe from risks such as internal and external fraud and under-performing loans.

Corporate Debt

Investments in corporations in the form of bonds can provide a good source of income.

International

Services the bank's international consumers and business needs, such as letters of credit and foreign exchange services.

Collateral

Specific property or other assets pledged by a borrower to secure a loan.

Prime Rate

The interest rate a bank offers its most creditworthy customers and the base rate used to set interest rate for other loans.

Monetary Policy

The management of a nation's money supply by a central bank, such as the federal Reserve to ensure the availability of credit in quantities and at interest rates consistent with specific economic objectives.

Investments

includes obligations of the federal goverment and its agencies, obligations of state and local inits of government, and stock in the Federal Reserve if the bank is a member.

LIBOR rate

international money market rate that represents the average rate offered by banks for interbank placement of Eurodollars.

Mortgaged Backed Agency Securities

issued by other U.S. governments agencies or U.S. government-sponsored enterprises such as the government national mortgage association

Annual Performance

management's summation of the banks achievements over the course of the year.

Fixed Assets

real estate owned by the bank, as well as furniture, fixtures, and equipment.

Asset

something of value; a resource; an advantage

Board of Directors

the governing body of a corporation ultimately responsible for its financial performance consisting of individual directors elected by the shareholders.

Equity

the investment interest of all shareholders in a cooperation, equaling the excess of assets over liabilities and including common and preferred stock, retained earning, surplus, and reserves.

Fiscal Year

A 12 month period selected by a business or government as an accounting period at the end of which the books are closed and profit or loss determined.

Financial Intermediary

A Financial institution that facilitates the exchange of funds between savers and spenders by taking in funds from savers and then lending those funds to borrowers and investors.

Funds Management

Balances the bank's needs for liquidity, safety, and income.

Capital Ration formula

Capital Ratio= Capital / Assets x 100 Measures bank stability and strength; the capital account absorbs losses not covered by current earning and loan loss services.

Compliance

Ensures that all bank staff and departments are in compliance with banking laws and the associated regulations.

Illiquid

Deficient in assets that can be quickly used to meet current obligations.

Information Systems Operation

Delivers info to the bank and its customers; processes transactions by using mainframes, computer networks, personal computers, the internet, and other electronic media; and keeps the necessary equipment functioning.

Commercial Banking

Delivers loan, deposit, and payment services to business.

Consumer Banking

Delivers loan, deposit, and payment services to individuals

Accounting and Finance

Organizes records and reports all transactions that represent the financial condition of the bank including how efficiently and profitable the bank is operated.

Dividend

Payments made by a corporation to its stock-holders.

Electronic Banking

Provides banking services over the internet or other electronic delivery channels.

Insurance

Provides insurance services for consumer and businesses.

Wealth Management

Provides personalized service to valued high-net-worth customers.

Return on Assets formula

ROA=Net profit / total assets x 100 Measures how well a bank uses assets to produce income.

Return on Equity formula

ROE= Net Profit / Total equity x 100 Measures the rate of return achieved relative to funds invested.

Human Resources

Recruits, trains, compensates, and supports bank employees

Creditworthiness

The ability and willingness to repay a debt, largely demonstrated by the borrower's credit history.

Liquidity

The ability of a business to meet its current obligations or to take such as a bank's ability to cover withdraws, pay for operating expenses, or make loans.

Open Market Operations

The purchase and sale U.S. Treasury and federal Reserve to influence the growth of the nation's money supply. They are the principal means by which the Federal Reserve implements monetary policy.

Federal Funds Rate

The rate banks charge one another for overnight loans of reserve funds held at Federal Reserve Banks.

Federal Discount Rate

The rate the Federal Reserve charges on its loans to banks.

Credit Risk

The risk that the borrower cannot or will not repay a loan interest as scheduled.

Market Risk

The risk that the market value of a security or other asset will decrease because of interest rate changes and other market conditions.

The Statement of Cash Flows

The statement of cash flows illustrates a bank's sources and uses cash over a period of time.

Negotiable Certificates of Deposit

These certificates of deposits can be sold before maturity and have a $100,000 min denomination.

Banker's Acceptances

These investments are drafts or bills of exchange that banks accept as liabilities by pledging their credit on behalf of customers.

Commercial Paper

This is a short-term unsecured obligations of large, financially sound corporation, both foreign and domestic.

Treasury Inflation Protected Securities (TIPS)

With 5-10 and 30 year maturities, these securities protect investors against inflation because the principal increases with the Consumer Price Index.

Treasury Bill

With maturities of less than one year, these securities are readily marketable and have limited market risk, short term security.

Corporation

a business organization treated as a legal entity and owned by a group of shareholders.

Insolvent

a position where liabilities exceed assets, resulting in the party being unable to meet its debt obligations.

Cash on hand

coin and currency held in the vault, checks in process of collection, and balances with other banks and the Federal Reserve.

Deposits

customer deposits subdivided into demand, savings, time, domestic, and global deposit accounts.

Dividends Payable

dividends to shareholders that have been approved by directors but not yet disbursed.