Banking and Financial Institutions

Vocabulary

accommodative monetary policy

action taken by a central bank in an attempt to boost the overall supply of money during times of slow growth

bank reserve

amount of money held to meet the demands of daily transactions and withdrawals

bank solvency

ability of a bank to meet its financial obligations for the long term

banking system

network of institutions that provide financial services to individuals and businesses

Board of Governors

seven-member governing body that oversees the Federal Reserve banks and helps with implementation of monetary policy in the United States

bond

financial instrument representing a loan made to a governmental or corporate body by some entity that requires repayment of the initial loan price plus interest on a fixed schedule

central bank

institution that manages a country's or state's money supply, interest rates, and currency

commercial bank

private institution primarily concerned with maximizing its revenue through holding deposits and making loans and investments with a portion of those deposits

depository institution

financial institution legally allowed to accept monetary deposits from the public and loan these funds

European Central Bank (ECB)

central bank of the European Union countries that have adopted the euro as their currency

excess reserve

monies held by banks and financial institutions above and beyond what is required by internal controls, regulators, and creditors

federal discount rate

interest rate charged to commercial banks and other depository institutions on loans received from the Federal Reserve

federal funds rate

interest rate at which banks and credit unions lend reserve balances to other banks and credit unions overnight

Federal Home Loan Mortgage Corporation (FHLMC)

private corporation founded by Congress whose mission is to promote stable and affordable housing markets by purchasing mortgages

Federal National Mortgage Association (FNMA)

government-sponsored corporation that buys qualified mortgage loans from financial institutions, issues securities against the mortgages, and sells them as funding sources for home mortgages

Federal Reserve

central bank of the United States in charge of setting monetary policy for the nation

Glass-Steagall Act of 1933

legislation that prohibited commercial banks from engaging in the investment business. This was passed because of the failure of nearly 5,000 banks during the Great Depression.

Government National Mortgage Association (GNMA)

federally owned corporation promoting homeownership by providing lower-priced mortgages in pooled securities, given timely payments to the loan providers

Gramm-Leach-Bliley Act of 1999

legislation that repealed and replaced the Glass‐Steagall Act, allowing commercial banks to again participate in investment banking activities. Legislation also requires that financial institutions explain fully their information-sharing practices to their customers.

liquidity

measure of the ability to convert assets to cash with ease, usually because of a financial obligation

monetary policy

actions of the central bank, current board, or other regulatory committee that determine the size and rate of growth of the supply of money, which in turn affects interest rates and inflation

open market

unrestricted market with free access to enter, buy, and sell

price stability

state in which prices do not change much over time and there is little inflation or deflation

Regulation Z

regulation requiring lending institutions to publish important credit terms, abstain from unfair and misleading practices, and respond to their customers

required reserve

amount of money banks must hold in reserve versus deposits made by their customers