Bank Regulation Overview

A situation where many people rush to withdraw their money from a bank due to fear that it might fail.

An organization responsible for overseeing the safety of savings banks and loan associations.

A situation where financial assets rapidly lose value, causing widespread economic problems.

A set of international agreements that establish banking regulations.

The first agreement of the Basel Accord, published in 1988, providing a framework for capital measurement.

The core capital of a bank, mainly comprised of shares and reserves.

A measure of a bank's capital required to cover its assets, based on risk levels.

A system of ranking bank assets according to their credit risk, used to determine capital requirements.

The ability of a bank to quickly pay its bills and obligations using cash and other easily convertible assets.

The sensitivity of a bank's financial health to changes in market conditions, especially interest rates.

A bank rehabilitation process where a conservator is appointed if the bank is illiquid, i.e., unable to meet short-term obligations despite having more assets than liabilities.

A bank rehabilitation process where a receiver is appointed when the bank is insolvent, i.e., owes more than it owns.

A bank rehabilitation process where the bank's assets are sold to pay off creditors, usually after insolvency.

The simultaneous withdrawal of deposits by many customers out of fear that a bank may fail.

The spread of economic crises from one market or region to another.

The ability of a borrower to repay a loan, assessed by comparing income to debts and calculating the debt-to-income ratio.

A system where credit information about borrowers is collected and shared among financial institutions, promoting responsible lending and improving access to credit.

A law that requires lenders to disclose the true cost of credit, including interest rates, fees, and total repayment amount, to help consumers make informed borrowing decisions.

Commercial banks use financial markets to manage their funds and risk, obtaining short-term capital, investing in bonds, and hedging against potential losses.

Commercial banks compete in the money market to attract deposits and obtain short-term funds needed for daily operations.

Banks participate in the mortgage market by offering loans for homes and commercial properties, providing financing for real estate.

Commercial banks invest in bonds issued by corporations, governments, and municipalities, earning interest income and managing their investment portfolio.

Commercial banks use futures contracts to hedge against interest rate fluctuations, managing the risk associated with changing interest rates.

Commercial banks use options on futures to further refine their interest rate risk management, taking advantage of flexible options strategies.

Companies offering financial services without banking licenses, unable to accept public deposits. Examples include insurance, pension funds, finance companies, mutual funds, and government financial intermediation.

Insurance is a contract where an individual or entity receives financial protection against losses, with the insurance company pooling risks to make coverage more affordable.

Pension funds collect investments to pay for employee retirement commitments, funded by employees, employers, or both.

A finance company provides loans to individuals and businesses, facilitating access to capital for various purposes.

Mutual funds collect money from multiple investors and invest it in a diverse portfolio of assets like stocks, bonds, and money market instruments.

The risk that the value of an investment will decrease due to changes in market conditions.

A type of market risk specific to the stock market, where share prices fluctuate.

The possibility of losing money because a borrower doesn't repay a loan.

Strategies to minimize losses from borrowers failing to pay.

The potential for losses from changes in interest rates, impacting the value of assets like loans and bonds.

Tools used to reduce interest rate risk, like using floating rates or hedging strategies.

The process of transforming assets (like loans) into securities, enhancing a bank's liquidity.

The ability of a bank to readily meet its financial obligations as they come due.

A bank's efforts to gather enough liquid assets to fulfill its obligations to depositors.

A bank's ability to easily access funding to meet its short-term obligations, often measured by credit ratings and market perceptions.

The practice of using various borrowing options, like the federal funds market, to secure short-term financing.

The process of shaping the composition of a bank's assets to optimize liquidity while considering profitability.

Utilizing a significant portion of funds to acquire short-term, highly marketable securities like Treasury bonds to ensure instant liquidity.

Managing loans to maintain liquidity by using a growing secondary market for loans.

A process where the bank's board of directors actively oversees the operations of the bank.