Glossary 189

Glossary

Adjustable-Rate Mortgage A mortgage that allows for the periodic adjustment of the interest 

rate on the basis of changes in a specified index or rate.

Agency Mortgage-Backed 

Security

A mortgage-backed security issued or guaranteed by federal 

agencies or government-sponsored enterprises.

Asset-Backed Commercial 

Paper (ABCP)

Short-term debt that has a fixed maturity of up to 270 days and 

is backed by some financial asset, such as trade receivables, 

consumer debt receivables, or auto and equipment loans 

or leases.

Asset-Backed Security (ABS) A term debt instrument that is collateralized by specific financial 

assets, such as credit card receivables or auto loans, and that 

makes payments based on the performance of these assets.

Auction Rate Security (ARS) A debt security, often issued by municipalities, in which the yield 

is reset regularly via a Dutch auction.

Bank for International 

Settlements (BIS)

An international financial organization that serves central banks 

in their pursuit of monetary and financial stability, helping foster 

international cooperation in those areas and acting as a bank 

for central banks.

Bank Holding Company (BHC) Any company that has direct or indirect control of one or more 

banks and is regulated and supervised by the Federal Reserve in 

accordance with the Bank Holding Company Act of 1956.

Basel Committee on Banking 

Supervision (BCBS)

The Basel Committee on Banking Supervision (BCBS) develops 

and issues international standards on bank capital adequacy. 

In 1988, the BCBS introduced a capital measurement system 

commonly known as the Basel Capital Accord, or Basel I. In 

2004, the BCBS issued a revised capital adequacy framework 

titled “International Convergence of Capital Measurement and 

Capital Standards: A Revised Framework,” which is commonly 

referred to as the New Accord, or Basel II. Following the financial 

crisis, the BCBS developed new global standards for the banking 

system that are collectively referred to as Basel III.

Broad Dollar Index A weighted average of the foreign exchange values of the U.S. 

dollar against the currencies of a large group of major U.S. trading 

partners. The index weights, which change over time, are derived 

from U.S. export shares and from U.S. and foreign import shares.
190 2012 FSOC // Annual Report

Broker-Dealer (BD) An entity that is engaged in the business of buying and selling 

securities for itself and others.

Central Counterparty An entity that is interposed between the initial participants to 

a bilateral transaction and becomes the buyer to every seller 

and the seller to every buyer of a specified set of contracts or 

financial instruments.

Clearing Bank A commercial bank that facilitates payment and settlement of 

financial transactions, such as check clearing or matching trades 

between the sellers and buyers of securities and other financial 

instruments and contracts.

Clearinghouse (Derivatives 

Clearing Organization or 

Clearing Agency)

An entity through which financial institutions agree to 

exchange payment instructions or other financial obligations 

(e.g., securities). The institutions settle for items exchanged 

at a designated time based on the rules and procedures of 

the clearinghouse. In some cases, the clearinghouse may 

assume significant counterparty, financial, or risk management 

responsibilities for the clearing system.

Clearing House Interbank 

Payments System (CHIPS)

An automated clearing system used primarily for international 

payments. This system is owned and operated by The Clearing 

House and engages Fedwire Funds Service for settlement.

Collateralized Mortgage 

Obligation (CMO)

A type of mortgage-backed security. CMOs are bonds that 

represent claims to specific cash flows from large pools of home 

mortgages. The streams of principal and interest payments on 

the mortgages are distributed to the different classes of CMO 

interests, known as tranches, according to a complicated deal 

structure. Each tranche may have different principal balances, 

coupon rates, prepayment risks, and maturity dates (ranging from 

a few months to 30 years).

Commercial Bank A chartered and regulated financial institution authorized to take 

deposits from the public, obtain deposit insurance from the FDIC, 

and engage in certain lending activities.

Commercial Mortgage Backed 

Security (CMBS)

A security that is collateralized by a pool of commercial 

mortgage loans and that makes payments that are based on the 

performance of those loans.

Commercial Paper (CP) Short-term (maturity typically up to 270 days), unsecured 

corporate debt.
Glossary 191

Committee on the Global 

Financial System

Monitors developments in global financial markets for central 

bank governors. The Committee on the Global Financial System 

has a mandate to identify and assess potential sources of stress 

in global financial markets, to further the understanding of the 

structural underpinnings of financial markets, and to promote 

improvements to the functioning and stability of these markets. 

The Committee on the Global Financial System also oversees the 

collection of the BIS international banking and financial statistics..

Committee on Payment and 

Settlement Systems (CPSS)

A committee of central banks hosted by the BIS that sets 

standards for payment and securities settlement systems.

Core Deposits Deposits that are stable, lower cost, and reprice more slowly than 

other deposits when interest rates change. Core deposits are 

typically funds of local customers who also have a borrowing or 

other relationship with the bank.

Credit Default Swap (CDS) A bilateral over-the-counter contract in which one party agrees 

to make a payment to the other party in the event of a specified 

credit event, in exchange for one or more fixed payments.

Credit Rating Agency A private company that evaluates the credit quality of debt 

issuers, as well as their issued securities, and provides ratings 

on the issuers and those securities. Many credit rating agencies 

are nationally recognized statistical rating organizations, the 

largest of which are Fitch Ratings, Moody’s Investors Service, and 

Standard & Poor’s.

Credit Union A member-owned, not-for-profit cooperative financial institution 

formed to permit members to save, borrow, and obtain related 

financial services. All federally chartered credit unions and most 

state-chartered credit unions provide federally insured deposits 

and are regulated by the NCUA.

Dark Pool A trading network that matches the orders of multiple buyers and 

sellers for a financial instrument without displaying quotations to 

the public.

Debt Valuation Adjustment (DVA) A decrease in the mark-to-market value of a bank holding 

company’s liability that is booked as a profit.

Defined Benefit Plan A retirement plan that uses a predetermined formula to calculate 

the amount of a participant’s future benefit.

Defined Contribution Plan A retirement plan in which the amount of the employer’s annual 

contribution is specified.
192 2012 FSOC // Annual Report

Depository Institution A financial institution that is legally permitted to accept deposits 

from individuals. Depository institutions include savings banks, 

commercial banks, savings and loan associations, and 

credit unions.

Discount Window The Federal Reserve facility for extending credit directly to 

eligible institutions.

Farm Credit System A government-sponsored enterprise created by Congress and 

composed of a network of borrower-owned financial institutions 

that provide credit to farmers, ranchers, residents of rural 

communities, agricultural and rural utility cooperatives, and 

other eligible borrowers. The Farm Credit System is the largest 

agricultural lender in the United States and is regulated by the 

Farm Credit Administration.

Federal Financial Institutions 

Examination Council (FFIEC)

An interagency body that prescribes uniform principles, 

standards, and report forms for the federal examination of 

financial institutions by the Federal Reserve, the FDIC, the NCUA, 

the OCC, and the CFPB. The FFIEC makes recommendations to 

promote uniformity in the supervision of financial institutions. The 

State Liaison Committee (SLC) serves as a voting member. The 

SLC includes representatives from the Conference of State Bank 

Supervisors, the American Council of State Savings Supervisors, 

and the National Association of State Credit Union Supervisors. 

Fedwire Funds Service A real-time gross settlement system owned and operated by the 

Federal Reserve Banks that offers participants the ability to send 

and receive time-critical payments for their own account or on 

behalf of their clients.

Fedwire Securities Service A book-entry securities transfer system operated by the Federal 

Reserve Banks that provides participants safekeeping, transfer, 

and delivery-versus-payment settlement services.

FICO Score A measure of a borrower’s creditworthiness based on the 

borrower’s credit data; developed by the Fair Isaac Corporation.

Financial Market Infrastructure A multilateral system among participating financial institutions, 

including the operator of the system, used for the purposes of 

recording, clearing, or settling payments, securities, derivatives, 

or other financial transactions. Financial market infrastructures 

exist in many financial markets to support and facilitate the 

transferring, clearing, or settlement of financial transactions.
Glossary 193

Financial Market Utility (FMU) Subject to certain exclusions, the Dodd-Frank Act defines an FMU 

as “any person that manages or operates a multilateral system 

for the purpose of transferring, clearing, or settling payments, 

securities, or other financial transactions among financial 

institutions or between financial institutions and the person.”

Fiscal Consolidation Government policy aimed at reducing government deficits and the 

pace of debt accumulation.

Fiscal Year Any 12-month accounting period. The fiscal year for the federal 

government begins on October 1 and ends on September 30 of 

the following year; it is named after the calendar year in which 

it ends.

Futures Commission Merchants 

(FCM)

Individuals, associations, partnerships, corporations, and trusts 

that solicit or accept orders for the purchase or sale of any 

commodity for future delivery on or subject to the rules of any 

exchange and that accept payment from or extend credit to those 

whose orders are accepted.

General Obligation Bond A type of municipal bond backed by the full faith and credit of the 

governmental unit that issues the bond.

Government-Sponsored 

Enterprise (GSE)

A corporate entity that has a federal charter authorized by law but 

that is a privately owned financial institution.

Gross Domestic Product (GDP) The broadest measure of aggregate economic activity, measuring 

the total value of all final goods and services produced within a 

country’s borders during a specific period.

The Group of Twenty Finance 

Ministers and Central Bank 

Governors (G-20)

An international forum established in 1999 to bring together 

officials of systemically important industrialized and developing 

economies to discuss key issues in the global economy.

Household Debt Service Ratio An estimate of the ratio of debt payments to disposable personal 

income. Debt payments consist of the estimated required 

payments on outstanding mortgage and consumer debt.

Interest Rate Risk Management Management of the exposure of an individual’s or an institution’s 

financial condition to movements in interest rates.

International Association of 

Insurance Supervisors (IAIS)

International organization that represents insurance regulators 

and supervisors in 190 jurisdictions worldwide. The IAIS issues 

global insurance principles, standards and guidance papers to 

promote effective insurance supervision.
194 2012 FSOC // Annual Report

International Organization of 

Securities Commissions (IOSCO)

An international organization of securities market regulatory 

agencies that sets standards for securities markets.

International Swaps and 

Derivatives Association (ISDA)

A trade association of over-the-counter derivatives participants. 

The ISDA Master Agreements standardized derivative terms to 

simplify netting and reduce legal risks for market participants.

Investment-Grade Bond A bond whose rating is among the highest in creditworthiness as 

measured by credit rating agencies.

Large Bank Holding Company Any bank holding company (BHC) that files the FR Y-9C. All 

BHCs with total consolidated assets of $500 million or more are 

required to file. Before March 2006, the threshold was $150 

million. BHCs meeting certain additional criteria determined by 

the Federal Reserve may be required to file regardless of size.

Leveraged Buyout An acquisition of a company in which the buyer uses borrowed 

funds for a significant portion of the purchase price.

Loan-to-Value Ratio (LTV) The ratio of the amount of a loan to the value of an asset, 

typically expressed as a percentage. This is a key metric when 

considering the financing of a mortgage.

Marketable Debt Obligations that can be bought and sold on public 

secondary markets.

Mark-to-Market The process by which the reported value of an asset is adjusted 

to reflect its market value.

Maturity Transformation A condition in which a financial intermediary issues shorter-term 

liabilities to fund longer-term assets.

Model Risk Risk related to using an incorrect model specification. For 

example, misspecification can result from programming errors, 

technical errors, data issues, or calibration errors.

Money Market Fund (MMF) A type of mutual fund that is required by law to invest in low-risk 

securities and pays dividends that generally reflect short-term 

interest rates. MMFs typically invest in government securities, 

certificates of deposit, commercial paper, or other highly liquid 

and low-risk securities.

Mortgage-Backed Security (MBS) An asset-backed security backed by a pool of mortgages. 

Investors in the security receive payments derived from the 

interest and principal payments on the underlying mortgages.
Glossary 195

Mortgage Servicer A company that acts as an agent for mortgage holders by 

collecting and distributing mortgage cash flows. Servicers 

also handle defaults, modifications, settlements, and 

foreclosure proceedings.

Municipal Bond A bond issued by states, cities, counties, local governmental 

agencies, or certain instrumentalities of the state.

Mutual Fund A type of investment company that issues redeemable securities, 

which the fund generally stands ready to buy back from investors 

at their current net asset value. Also called an open-end 

investment company or open-end fund.

Nationally Recognized Statistical 

Rating Organization

A credit rating agency that is registered with the SEC as a 

nationally recognized statistical rating organization.

Over-the-Counter (OTC) A method of trading that does not involve an organized exchange. 

In over-the-counter markets, participants trade directly with each 

other, typically through voice or computer communication.

Payday Lenders Lenders that make small, short-term loans to households, with 

the loan repayment due in full on the borrower’s pay day.

Personal Consumption 

Expenditures (PCE)

A measurement of the goods and services purchased 

by households.

Personal Savings Rate Personal savings as a percentage of disposable personal income.

Prudential Regulation Regulation aimed at ensuring the safe and sound operation of 

financial institutions, set by both state and federal authorities.

Public Company Accounting 

Oversight Board (PCAOB)

A nonprofit corporation established by Congress that oversees the 

audits of public companies to protect the interests of investors 

and further the public interest in the preparation of informative, 

accurate, and independent audit reports. PCAOB also oversees 

the audits of broker-dealers.

Public Debt Cumulative amounts borrowed by the Treasury Department or the 

Federal Financing Bank from the public or from another fund or 

account. The public debt does not include agency debt (amounts 

borrowed by other agencies of the federal government).

Q4/Q4 Fourth quarter over fourth quarter. A way of computing the rate 

of growth of a statistic over a calendar year by comparing the 

statistic’s value in the fourth quarter of the year with its value in 

the fourth quarter of the previous year.
196 2012 FSOC // Annual Report

Ratings Uplift The difference between the stand-alone credit rating assigned by 

a credit rating agency to an issuer, based on that issuer’s intrinsic 

financial strength, and the higher credit rating that considers the 

possibility of implicit external (e.g., government) support.

Receiver A custodian appointed to maximize the value of the assets of a 

failed institution or company and to settle the liabilities.

Repurchase Agreement (Repo) A transaction in which one party sells a security to another party 

while agreeing to repurchase it from the counterparty at some 

date in the future at an agreed price.

Reserves Funds that a depository institution holds against specified 

deposit liabilities.

Residential Mortgage-Backed 

Security (RMBS)

A security that is collateralized by a pool of noncommercial, 

residential mortgage loans and makes payments that are based 

primarily on the performance of those loans.

Revenue Bond A type of municipal bond backed by revenue from the project the 

bond finances.

Revolving Credit A lending arrangement whereby a lender commits to provide 

a certain amount of funding to a borrower on demand. The 

borrower may generally borrow and repay the committed funding 

at any time over the term of the agreement.

Risk-Based Capital An amount of capital, based on the risk-weighing of various asset 

categories, that a financial institution should hold to protect 

against adverse developments.

Securities Lending The temporary transfer of securities from one party to another for 

a specified fee and term in exchange for collateral in the form of 

cash or securities.

Securitization A financial transaction in which assets such as mortgage loans 

are pooled, and securities representing interests in the pool 

are issued.

Self-Regulatory Organization 

(SRO)

An organization that has the authority to regulate its members 

by establishing and enforcing rules and standards regarding its 

members’ conduct.

Short-Term Wholesale Funding Large-value, short-term funding instruments, exceeding 

deposit insurance limits, that are typically issued to institutional 

investors. Examples include large checkable and time deposits, 

financial open market paper, and repurchase agreements.
Glossary 197

Supervisory Capital Assessment 

Program (SCAP)

A stress test, conducted from February to May 2009, designed to 

estimate the capital needs of U.S. bank holding companies with 

assets exceeding $100 billion under an adverse macroeconomic 

scenario; it was administered by the Federal Reserve, OCC, 

and FDIC.

Supervisory Information Generally refers to reports of examination and inspection, 

operating and condition reports, and any information derived 

from, relating to, or contained in them, and information gathered 

by agencies responsible for supervising financial institutions in 

connection with any investigation or enforcement action.

Temporary Liquidity Guarantee 

Program (TLGP)

A program implemented in October 2008 by the FDIC through a 

systemic risk determination to provide liquidity to the banking 

industry by restoring banks’ access to funding markets and by 

stabilizing bank deposits. The program had two components: the 

Debt Guarantee Program and the Transaction Account Guarantee 

(TAG) Program.

Term Asset-Backed Securities 

Loan Facility (TALF)

A Federal Reserve funding facility that issued loans with terms 

of up to five years to holders of eligible asset-backed securities 

(ABS). TALF was intended to assist the financial markets in 

accommodating the credit needs of consumers and businesses 

by facilitating the issuance of ABS collateralized by a variety of 

consumer and business loans. TALF was also intended to improve 

the market conditions for ABS more generally. The program 

began operating in 2009. 

Thrift A financial institution that ordinarily possesses the same 

depository, credit, financial intermediary, and account 

transactional functions as a bank but that is chiefly organized 

and primarily operates to promote savings and home mortgage 

lending rather than commercial lending. Also known as a savings 

bank, a savings association, or a savings and loan association.

Time Deposits Deposits that the depositor, generally, does not have the right to 

withdraw funds before a designated maturity date without paying 

an early withdrawal penalty. A certificate of deposit is a 

time deposit.

Tri-Party Repo A repurchase agreement in which a third-party agent, such as a 

clearing bank, acts as an intermediary to facilitate the exchange 

of cash and collateral between the two counterparties. In addition 

to providing operational services to participants, the tri-party 

agents in the U.S. tri-party repo market extend large amounts of 

intraday credit to facilitate the daily settlement of tri-party repos.
198 2012 FSOC // Annual Report

Troubled Asset Relief Program 

(TARP)

A government program to address the financial crisis, authorized 

by the Emergency Economic Stabilization Act of 2008, allowing 

the government to purchase or insure up to $700 billion in assets 

and equity from financial institutions.

Underwriting Standards Terms, conditions, and criteria used to determine the extension of 

credit in the form of a loan or bond.

Yield Curve A curve mapping the relationship between bond yields and their 

respective maturities.