2019 Risk Review | 47

Glossary of Terms

Asset Size Group A term used to describe the insured institutions covered in the 

liquidity analysis in this report. Institutions with total assets 

greater than $100 billion, 30 institutions as of year-end 2018, 

were excluded from the liquidity analysis because of their unique 

business models, highly complicated balance sheet structures, 

and specific regulatory liquidity coverage requirements that set 

them distinctly apart from a community bank model.

Bond A certificate of indebtedness issued by a government 

or corporation.

Brexit A portmanteau for British exit from the European Union, referring 

to the United Kingdom’s vote to leave the European Union. 

Call Report Consolidated Reports of Condition and Income.

Capital The net worth or value that remains if an institution paid off all 

of its liabilities. At its core, bank capital is equity. Bank capital 

or equity can be expressed by the basic accounting formula: 

Assets – Liabilities = Equity. See also Regulatory Capital.

Central Bank An institution that oversees and regulates the banking system 

and quantity of money in the economy.

Collateral Property required by a lender and offered by a borrower as a 

guarantee of payment on a loan. Also, a borrower’s savings, 

investments, or the value of the asset purchased that can be 

seized if the borrower fails to repay a debt.

Collateralized Loan Obligations Securitization vehicles backed predominantly by 

commercial loans. 
48 | 2019 Risk Review

Community Bank FDIC-insured institutions meeting the criteria for community 

banks defined in the FDIC’s Community Banking Study, published 

in December 2012 (https://www.fdic.gov/regulations/resources/

cbi/report/cbi-full.pdf). Noncommunity banks are banks that 

do not fit these criteria.

Composite Rating A rating assigned by federal regulators to each financial 

institution, based upon an evaluation of financial and operational 

criteria. The rating is based on a scale of “1” to “5” in ascending 

order of supervisory concern.

Consolidation Net consolidation comprises newly chartered banks and banks 

that close. A bank may close because of voluntary merger, failure, 

or other reason (such as voluntary liquidation or termination 

of FDIC insurance, or acquisition by an institution without FDIC 

insurance, such as a credit union).

Deposit Betas The percentage of the federal funds rate that banks pass on to 

depositors with interest-bearing accounts.

Default Failing to promptly pay interest or principal when due.

Farm Bank A bank with agricultural production loans plus real estate 

loans secured by farmland in excess of 25 percent of total 

loans and leases.
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FDIC Regions Atlanta, Chicago, Dallas, Kansas City, New York, and San Francisco. 

The FDIC maintains a regional office in each of these cities.

•	 Atlanta Region: Alabama, Florida, Georgia, North Carolina, 

South Carolina, Virginia, West Virginia

•	 Chicago Region: Illinois, Indiana, Kentucky, Michigan, 

Ohio, Wisconsin

•	 Dallas Region: Arkansas, Colorado, Louisiana, Mississippi, 

New Mexico, Oklahoma, Tennessee, Texas

•	 Kansas City Region: Iowa, Kansas, Minnesota, Missouri, 

Nebraska, North Dakota, South Dakota

•	 New York Region: Connecticut, District of Columbia, 

Delaware, Maine, Maryland, Massachusetts, New 

Hampshire, New Jersey, New York, Pennsylvania, Puerto 

Rico, Rhode Island, Vermont, Virgin Islands

•	 San Francisco Region: Alaska, American Samoa, Arizona, 

California, Federated States of Micronesia, Guam, Hawaii, 

Idaho, Montana, Nevada, Oregon, Utah, Washington, 

Wyoming 

New York

Atlanta

Kansas City

Dallas

San Francisco

Chicago
50 | 2019 Risk Review

Federal Funds Rate The interest rate at which a depository institution lends 

funds that are immediately available to another depository 

institution overnight.

Federal Open Market Committee A committee created by law that consists of the seven members 

of the Board of Governors; the president of the Federal Reserve 

Bank of New York; and, on a rotating basis, the presidents of four 

other Reserve Banks. Nonvoting Reserve Bank presidents also 

participate in FOMC deliberations and discussion.

High-Yield (Junk) Terms generally synonymous with noninvestment grade, which 

refers to the lowest-rated bonds subjected to third-party credit 

risk assessments by nationally recognized statistical ratings 

organizations (NRSROs). In the United States, noninvestment 

grade bonds are typically rated Ba1 or below by Moody’s, or 

BB+ or below by Standard & Poor’s or Fitch.

Investment-Grade Generally, the highest-rated bonds subjected to third-party credit 

risk assessments by NRSROs. In the United States, investment 

grade bonds are typically rated Baa3 or above by Moody’s, or 

BBB- or above by Standard & Poor’s or Fitch.

Household Leverage Household debt relative to household income.

Leveraged Loans Numerous definitions of leveraged lending exist throughout 

the financial services industry and commonly contain some 

combination of the following:

•	 Proceeds used for buyouts, acquisitions, 

or capital distributions.

•	 Transactions where the borrower’s total debt divided by 

EBITDA (earnings before interest, taxes, depreciation, 

and amortization) or senior debt divided by EBITDA 

exceeds 4.0X EBITDA or 3.0X EBITDA, respectively, 

or other defined levels appropriate to the industry or 

sector.

•	 A borrower recognized in the debt markets as a highly 

leveraged firm, which is characterized by a high debt-tonet-worth ratio.

•	 Transactions when the borrower’s post-financial 

leverage, as measured by its leverage ratios 

(for example, debt-to-assets, debt-to-net-worth, debtto-cash flow, or other similar standards common to 

particular industries or sectors), significantly exceeds 

industry norms or historical levels.
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Long-Term Assets Loans and debt securities with remaining maturities or repricing 

intervals of more than five years.

Net Borrower For an individual bank customer, borrowings from the bank 

are greater than deposits.

Net Depositor For an individual bank customer, deposits with the bank 

are greater than borrowings.

Net Interest Margin The difference between interest and dividends earned on 

interest-bearing assets and interest paid to depositors and other 

creditors, expressed as a percentage of average earning assets. 

No adjustments are made for interest income that is tax exempt.

Nonaccrual Loans and Leases Loans and leases 90 or more days past due and for which 

payment in full of principal or interest is not expected.

Nonbank Firms that are not part of or affiliated with FDIC-insured 

depository institutions.

Noncurrent Loans and Leases Loans and leases 90 days or more past due, and loans 

and leases in nonaccrual status.

Nondepository Financial Institution A more specific categorization of nonbanks, consistent with 

the definition provided in the instructions for the Consolidated 

Reports of Condition and Income (Call Reports), including 

real estate investment trusts, mortgage companies, finance 

companies, holding companies of other depository institutions, 

investment banks, Small Business Investment Companies, and 

other financial intermediaries. For additional details, refer to the 

instructions for Call Report Schedule RC-C, Item 9.a. 

Past-Due Loans and Leases Loans and leases 30 to 89, or 90 days or more past due 

and still accruing interest.

Primary Market The market in which new stocks and bonds, in the form of initial 

public offers (IPOs), are issued.
52 | 2019 Risk Review

Problem Banks Institutions with financial, operational, or managerial weaknesses 

that threaten their continued financial viability. Federal regulators 

assign a composite rating to each financial institution, based 

upon an evaluation of financial and operational criteria. The 

rating is based on a scale of “1” to “5” in ascending order of 

supervisory concern. Depending upon the degree of risk and 

supervisory concern, problem banks are rated either a “4” or “5.” 

Real Gross Domestic Product The total market value of all final goods and services produced 

in an economy in a given year calculated by using a base year’s 

price for goods and services; nominal GDP adjusted for inflation.

Regulatory Capital Capital set aside to provide protection against (to absorb) 

losses. A measure of capital as defined by supervisory 

authorities. Generally, regulatory capital is calculated by 

deducting certain assets from bank capital that have no or 

limited loss-absorbing capacity, and adding other items. 

Regulatory Capital Requirements Requirements that consider the risk levels of a banking 

organization’s exposures and activities, and act to constrain 

leverage that a banking organization may incur by limiting the 

extent to which it can extend credit and invest in financial 

assets relative to money that the banking organization owes 

to others. Regulatory capital requirements are set at levels 

intended to foster the safety and soundness of individual banking 

organizations and the banking system.

Recession A period of declining real income and rising unemployment; 

significant decline in general economic activity extending over 

a period of time.

Revolving Credit A line of available credit that is usually designed to be used 

repeatedly, with a preapproved credit limit. The amount of 

available credit decreases and increases as funds are 

borrowed and is then repaid with interest.

Secondary Market The market in which investors buy and sell securities among 

each other.
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Securitization A financial transaction in which assets such as mortgage 

loans are pooled and securities representing interest in 

the pool are issued.

Short-Term Liquid Assets Cash and due from accounts, federal funds sold, securities 

purchased under resale agreements, and securities maturing 

in less than one year. 

Tariff A tax that must be paid before a good may be brought into 

a country.

Tax Cuts and Jobs Act A law enacted in December 2017 that reformed both individual 

income and corporate income taxes.

Warehouse Lending Short-term funding of a mortgage lender based on the 

collateral of warehouse loans (in mortgage lending, loans 

that are funded and awaiting sale or delivery to an investor). 

This form of interim financing is used until the warehouse 

loans are sold to a permanent investor. 

Warehouse financing is also extended in the arrangement of 

Collateralized Loan Obligations (CLOs) and to other securitization 

firms. In this context, warehouse financing is a line of credit the 

CLO manager uses to purchase assets. Upon the CLO’s closing, 

the CLO repays the warehousing lenders using the proceeds 

from the sale of the notes, and the CLO becomes the owner 

of the assets. The CLO manager uses warehousing to manage 

market risk when they purchase assets for the deal’s portfolio; 

the warehouse provider assumes the risk of any mark-to-market 

losses in the portfolio during the warehousing period.
54 | 2019 Risk Review

Wholesale Funding Federal funds purchased and securities sold under agreement 

to repurchase; brokered and listing service, municipal and 

state, and foreign deposits; and other borrowings (such as from 

the Federal Home Loan Bank). Providers of wholesale funding 

closely track institutions’ financial condition and may cease or 

curtail funding, increase interest rates, or increase collateral 

requirements if they determine an institution’s financial condition 

is deteriorating. As a result, some institutions may experience 

liquidity problems due to a lack of wholesale funding availability 

when funding needs increase.

Yield Curve The relationship between maturities and interest rates on 

government bonds. The yield curve captures the cost of borrowing 

money to finance consumption, investment, or government 

spending and thus is of central importance to the entire economy. 

Yield curves generally exhibit three different shapes—normal, flat, 

and inverted—which are characterized by long-term interest rates 

being above, similar to, or below short-term interest rates.