Glossary of banking terms

60 words people use when they talk about money — explained the way you would explain them to someone with no banking background. In the course each one shows up not as a definition but as an entry you post yourself.

• Assetwhat is owed to you or what you own (a loan, a bond, a building)
• Liabilitywhat you owe (a customer's deposit is the bank's debt!)
• Equitythe shareholders' money; it takes the losses first
• Reserves“money for banks” in accounts at the central bank — banks pay each other with it
• Money supply (M2)the deposits of people and companies + cash in circulation
• Double-entry bookkeepingevery operation changes at least two lines; Δassets = Δthe right side of the balance sheet (liabilities + equity)
• Loan loss provisionan expected loss on loans, recognized in advance
• Escrowa payment frozen at the bank until a condition is met (the building is handed over)
• Mezzaninesecond-in-line debt: expensive, unsecured, paid after the bank
• Repoa loan against securities with a buyback; the securities stay on the balance sheet
• Interbank marketshort loans of reserves between banks, usually overnight
• AFS / HTMsecurities portfolios: revalued at market prices / “to maturity,” never revalued
• Underwritingbuying an issue outright and reselling it to investors
• Bridge loana short, expensive loan until the “long” money arrives
• Syndicationslicing a large loan into pieces for many banks
• Convertible bonddebt with the right to be exchanged for shares
• SAFEmoney for a startup now in exchange for shares at a future round
• Goodwillthe overpayment when buying a business above the value of its net assets
• LBO / MBObuying a company mostly with borrowed money; the debt is hung on the company itself
• Earn-outthe part of the deal price that depends on future results
• Vendor loaninstallments granted by the seller of the business
• Dividend recapthe company borrows in order to pay a dividend to its shareholder
• SPVan envelope company that separates assets and risks
• Securitizationpackaging loans into securities and selling them to investors
• Tranchea floor of the issue: senior is paid first, equity burns first
• Waterfallthe order in which money is handed out floor by floor: senior → mezz → equity; it works both in regular payments and in a collapse
• CDSinsurance against default: the seller pays on a credit event
• TRSa total return swap: the risk and the return of an asset without owning it
• Margin / margin callcollateral behind a leveraged position / a demand to add more at once
• QEthe central bank buying assets with reserves it created
• ELAan emergency central bank loan to a bank: against collateral, at a penalty rate
• Bail-inrescuing a bank by converting its debts and deposits into its equity
• Stablecoina private token 1:1 to a currency; the issuer earns on the reserves
• Seignioragethe income of whoever issues money: it collects interest on the reserves and pays the holders of its money nothing
• CET1 / Basel IIIthe Basel minimum of own capital against risk-weighted assets: 4.5% plus a 2.5% buffer (local supervisors ask for more). Government bonds “weigh” zero, loans weigh a lot
• LCRthe required liquidity buffer for 30 days of outflow
• Liquiditythe ability to pay right now without selling everything off in a panic
• Fundingwhat a bank is “powered” by: deposits, the interbank market, bonds, equity
• Durationhow sensitive a bond's price is to the rate: the longer the maturity, the more it hurts
• Spreadthe difference in rates or prices that a financier lives on
• NIMnet interest margin: income on loans minus the price of funding
• Annuityan equal payment on a loan: at the start it is almost all interest
• LTVloan against the value of the collateral: LTV 80% = a safety cushion of 20%
• DSCRcash flow against the debt payment: below 1 the project cannot carry itself
• Overnighta loan for a single night; its rate is the pulse of the banking system
• Optionthe right (not the obligation) to buy or sell at an agreed price
• Futurean obligation to buy or sell later on; it lives on margin
• Hedgea deal that cancels the risk of another deal
• Volatilitythe swing of price moves; the fuel of options and margin calls
• Defaultfailure to pay an obligation on time
• Refinancingnew debt in place of old; deadly when the market is shut
• Subordinated debtpaid after the “senior” lenders but before the shareholders
• Covenantsthe borrower's promises in the agreement: break one and the whole debt falls due
• Leveragebuying with borrowed money: it multiplies both the profit and the disaster
• Mark-to-marketrevaluing a position at the current market price
• Clearingnetting of opposing obligations: only the difference is paid
• Credit ratingan estimate of the probability of default: from AAA to D
• Policy ratethe price of money from the central bank; the throttle of the credit machine
• Issuanceputting new money or new securities into circulation
• The liability sidethe right side of the balance sheet: whose money it is; the asset side is where it was put