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1913 Federal Reserve Act

What Does 1913 Federal Reserve Act Mean?


The 1913 U.S. legislation that created the current Federal Reserve System. The Federal
Reserve Act intended to establish a form of economic stability through the introduction
of the Central Bank, which would be in charge of monetary policy, into the United States.
The Federal Reserve Act is perhaps one of the most influential laws concerning the U.S.
financial system.

Investopedia explains 1913 Federal Reserve Act

Prior to 1913, panics were common occurrences, as investors were unsure about the
safety of their deposits. The Federal Reserve Act gave the 12 Federal Reserve banks the
ability to print money in order to ensure economic stability. In addition to this task, the
Fed had the power to adjust the discount rate/the fed funds rate and buy & sell U.S.
treasuries.

3-6-3 Rule

What Does 3-6-3 Rule Mean?


Slang used to refer to an "unofficial rule" under which the banking industry once
operated, which alludes to it being noncompetitive and simplistic.

The 3-6-3 rule describes how bankers would give 3% interest on depositors' accounts,
lend the depositors money at 6% interest and then be playing golf at 3pm. This alludes to
how a bank's only form of business is lending out money at a higher rate than what it is
paying out to its depositors.

Investopedia explains 3-6-3 Rule


Many attribute the problems faced by the banking industry during the events that lead up
to the Great Depression as reasons why the government implemented tighter banking
regulations. These regulations controlled the rates at which banks can lend and borrow
money. Unfortunately, the regulations made it difficult for banks to compete with each
other and the banking industry became stagnant.

However, with the loosening of banking regulations and the widespread adoption of
information technology such as the internet, banks now operate in a much more
competitive and complex manner. For example, banks are now providing insurance,
brokerage and other forms of financial services.

ABA Bank Index

What Does ABA Bank Index Mean?


A banking index that is made up of community banks and banking institutions. This
index was created to represent the smaller institutions of the banking industry and stands
in contrast to the KBW Banking Index in that respect. The ABA index trades on the
Nasdaq under the symbol ABAQ.

Investopedia explains ABA Bank Index


The ABAQ Index is weighted according to market value. The index was created in 2003
in an effort to publicize the community banking industry and is computed for both total
and price return. The ABAQ is also designed to aid in improved market liquidity and
more equitable market valuations.

ABA Transit Number

What Does ABA Transit Number Mean?


A unique number assigned by the American Bankers Association (ABA) that identifies a
specific federal or state chartered bank or savings institution. In order to qualify for an
ABA transit number, the financial institution must be eligible to hold an account at a
Federal Reserve bank. ABA transit numbers are also known as ABA routing numbers,
and are used to identify which bank will facilitate the payment of the check.

Investopedia explains ABA Transit Number


The ABA Transit number was originally developed in 1910 to indicate check processing
endpoints. Since then, the number's use has increased to include participants in check
clearing between banking institutions, automated clearing houses and online
banking activities.

The ABA check routing number is usually the first nine digits in the bottom row of
numbers on any check. For example, if the bottom row showed 123456789 0100100120:
0123, the ABA routing number would be 123456789.

Abu Dhabi Investment Council - ADIC

What Does Abu Dhabi Investment Council - ADIC Mean?

A sovereign wealth fund owned by Abu Dhabi, the capital of the United Arab Emirates
(UAE). It is wholly owned and administered by the UAE. The Abu Dhabi Investment
Council is funded by revenue from the country's oil industry, and invests those revenues
in a wide range of asset classes, including equities, debt, real estate, infrastructure and
private equity.

Its sister fund is the Abu Dhabi Investment Authority (ADIA), which is one of the
world's largest sovereign wealth funds.

Investopedia explains Abu Dhabi Investment Council - ADIC

The Abu Dhabi Investment Council was established in 2007. While the fund does invest
in assets across the globe, the primary focus of the ADIC is to invest in Abu Dhabi's
economy. Domestic assets include banks, investment houses and insurance companies.

Acceptance Market

What Does Acceptance Market Mean?

Investment market based on short-term credit instruments. An acceptance is a time draft


or bill of exchange that is accepted as payment for goods. A banker's acceptance, for
example, is a time draft drawn on and accepted by a bank, which is a common method of
financing short-term debts in international trade including import-export transactions.

Investopedia explains Acceptance Market


The acceptance market is useful to exporters, who are immediately paid for exports; for
importers, who do not need to pay until possession of goods occurs; for the financial
institutions, that are able to profit from the acceptances; and for investors who trade
acceptances in the secondary market. Acceptances are sold in the secondary market at a
discount from face value (similar to the Treasury Bill market), at published acceptance
rates.

Accommodation Endorser

What Does Accommodation Endorser Mean?


An entity or person who agrees to back the credit obligations of another party in order to
allow that party to obtain credit for which they would not otherwise qualify. It is the
equivalent of a payment guarantee.

Investopedia explains Accommodation Endorser


Accommodation endorsers typically have some relationship with the borrowing person.
Typical examples would include a parent company endorsing a subsidiary or a parent
endorsing a child with no credit rating. The advantage of having an accomodation
endorser may not only include obtaining credit, but may result in a reduced rate of
interest as well.

Accommodation Paper

What Does Accommodation Paper Mean?


A negotiable instrument that provides a third-party promise of payment in the case that
the original borrower does not live up to the terms of the original
transaction. Accommodation papers are usually used to support one
party's creditworthiness through endorsement by a second party with a better credit
rating.

Investopedia explains Accommodation Paper


Accommodation papers enable borrowers to obtain loans for which they would not
otherwise be qualified, and may also reduce the rate of interest the borrower will be
charged. For example, accommodation papers may be used by parents who want to help
their children obtain credit for the first time, or by parent companies supporting their
subsidiaries.
Accord And Satisfaction

What Does Accord And Satisfaction Mean?


A legal contract whereby two parties agree to discharge a tort claim, contract or
other liability for an amount or based on terms that differ from the original amount of the
contract or claim. Accord and satisfaction is also used to settle legal claims prior to
bringing them to court.

Investopedia explains Accord And Satisfaction


The accord is the agreement on the terms, and the satisfaction is the performance of the
agreement. When there is an accord and satisfaction, and the performance (or
satisfaction) has been executed, all prior claims relating to the matter are extinguished.

An accord and satisfaction may occur in debt negotiations whereby the original credit
agreement between the bank and Company A is revised (by stretching out payments, or
reducing an interest rate) and Company A delivers on the new terms. If for some reason
Company A does not deliver on the new terms, it may be liable for the original contract,
because it did not satisfy the terms of the accord.

Account History

What Does Account History Mean?


All activity within an account, usually since inception. In a bank account, the account
history includes all transactions initiated by the account holder as well as passive entries
(such as interest on balances, which are credited to the account). The account history is
also called a "ledger", depending on where the account is held.

Investopedia explains Account History


Account histories can be a very important tool for credit card companies to identify fraud
or identity theft, particularly when transactions are out of the ordinary in terms of their
amount or place of purchase. Account history is recorded on the account statement,
which is an important document to retain.

Most checking, savings and brokerage accounts will send a monthly statement to account
holders. This statement should include the account history for that month.
Account Inquiry

What Does Account Inquiry Mean?


Any inquiry into an account, whether it be a depositary account or credit account. The
inquiry can refer to past records, payments or other specific transactions, or any other
entries relating to the account.

Investopedia explains Account Inquiry


Most financial institutions have a formal department that deals with account inquiries.
Sometimes the term is used when there is a request to or from a credit agency about a
particular consumer.

Accounts Receivable Conversion - ARC

What Does Accounts Receivable Conversion - ARC Mean?


A process that allows paper checks received in payment for an account receivable to be
electronically scanned and converted into an electronic payment through the Automated
Clearing House. ARC saves time and the expense of actually processing the check. Both
the vendor and the bank on which the payment was drawn receive only an electronic
image of the check.

Investopedia explains Accounts Receivable Conversion - ARC


As the financial industry becomes increasingly computerized, ARC has become the norm
rather than the exception for large payment processors. Prior to ARC and electronic
payments, the most common method of payment was lockbox banking, in which
payments are made to a post office box serviced by a bank.

ARC speeds the payment to the vendor, who otherwise would have to wait for an actualy
check to be transported and processed.

Accredited Automated Clearing House


Professional - AAP
What Does Accredited Automated Clearing House Professional - AAP Mean?
A professional designation awarded by NACHA (The Electronic Payments Association)
to individuals who are experts in electronic payments. Successful applicants earn the
right to use the AAP designation with their names for five years, which can improve job
opportunities, professional reputation and pay. Every five years, AAP professionals must
complete 60 hours of continuing education or successfully retest in order to continue
using the designation.

Investopedia explains Accredited Automated Clearing House Professional - AAP


To pass the AAP exam, applicants should understand ACH rules and regulations,
operational requirements, ACH products and applications, the electronic payments cycle,
risk management, marketing ACH services, providing ACH-related customer service and
more. It is also helpful to have at least two years of professional experience working with
ACH payments. Individuals with the AAP designation may work for financial institutions
such as banks and credit unions as well as federal or state government entities that
process electronic payments.

Acquisition Financing

What Does Acquisition Financing Mean?


The capital that is obtained for the purpose of buying another business. Acquisition
financing allows the user to meet their current acquisition aspirations by providing
immediate resources that can be applied toward the transaction.

Investopedia explains Acquisition Financing


There are several different choices for a company that is looking for acquisition
financing. A line of credit or a traditional loan are the most common choices. Favorable
rates for acquisition financing can help smaller companies reach economies of scale and
is generally viewed as an effective method for increasing the size of the company's
operations.

Acquisition Loan
What Does Acquisition Loan Mean?
A loan given to a company to purchase a specific asset or to be used for purposes that are
laid out before the loan is granted. The acquisition loan is typically only able to be used
for a short window of time, and only for specific purposes.

Once repaid, funds available through an acquisition loan cannot be reborrowed as with a
revolving line of credit at a bank.

Investopedia explains Acquisition Loan


Acquisition loans are sought when a company wants to complete an acquisition for an
asset but doesn't have enough liquid capital to do so. The company may be able to get
more favorable terms on an acquisition loan because the assets being purchased have a
tangible value, as opposed to capital being used to fund daily operations or release a new
product line.

Active Asset

What Does Active Asset Mean?


An asset that is used by a business in its daily or routine operations. Active assets can be
tangible, such as buildings or equipment, or intangible, such as patents or copyrights.
Active assets are listed as assets on the business's balance sheet.

Investopedia explains Active Asset


Businesses depend on active assets in order to function on a daily basis. Active assets
stand in contrast to passive assets, which may not be needed by the business at a given
time in order to operate. Active assets should also not be confused with active asset
allocation, which is a type of investment strategy.

Active Money
What Does Active Money Mean?
The total value of coins and paper currency in circulation amongst the public. The
amount of active money fluctuates seasonally, monthly, weekly and daily. In the United
States, the Federal Reserve Banks distribute new currency for the US Treasury
Department. Banks lend money out to customers which becomes classified as active
money once it is actively circulated.

Investopedia explains Active Money


Active money is all the coins and paper currency in the hands of the public. Due to the
high demand from abroad, the majority of US cash in circulation is outside of the United
States. The variable demand for cash equates to a constantly fluctuating active money
total. For example, people typically cash paychecks or withdraw from ATMs over the
weekend, so there is more active cash on Monday than on Friday. The public demand for
cash declines at times - following the holiday season, for example.

Activity Charge

What Does Activity Charge Mean?


A fee charged to cover the servicing costs of an account. An activity charge is triggered
by an activity or event, and should follow a fee schedule outlined in the account contract.
These fees can be based on teller and non-teller activities.

Investopedia explains Activity Charge


Activity charges can be all encompassing; for example, a monthly service charge on a
checking account may cover a certain number of transactional items. A different account
may charge only per-item fees, such as a fee for each check written or each account
withdrawal. A very common activity charge is the service charge for an automated teller
machine (ATM) withdrawal at a bank other than your own.

Add-On Interest

What Does Add-On Interest Mean?


A method of calculating interest whereby the interest payable is determined at the
beginning of a loan and added onto the principal. The sum of the interest and principal is
the amount repayable upon maturity.
Investopedia explains Add-On Interest
For example, let's say Bank A borrows $1,000 for two years from Bank B and that annual
interest rates are 9%. Furthermore, Bank A will repay the loan in two equal repayments
at the end of each year. The interest charge on the loan is $180 ($1,000 x 9% x 2
years). Adding this to the principal gives a total of $1,180. The annual payment will be
$590 ($1,180/2).

When multiple repayments are used in add-on interest, the effective lending rate becomes
higher than the nominal rate. This is caused the borrower returns a portion of the
principal with each payment, but is still being charged interest on the amount of the
original loan. In short, if you are borrowing under the add-on interest method, you are
paying more.

Adjustment Credit

What Does Adjustment Credit Mean?


A short-term loan made by a Federal Reserve Bank to a smaller commercial bank as
needed to maintain reserve requirements and support short-term lending. These advances
are a very common form of borrowing from a Federal Reserve Bank and are most often
used when interest rates are high and money supply is short.

Investopedia explains Adjustment Credit


Commercial banks are required to hold a certain amount of funds in reserve in order to
assure customers that their money is available upon request. When reserves are low,
adjustment credits allow banks to continue to lend through advances by the Federal
Reserve that are secured through the bank's own promissory notes.

Advance Rate

What Does Advance Rate Mean?


A percentage of collateral that determines the loan amount that a lender will issue a
company.
Investopedia explains Advance Rate
If a lender's advance rate is 85%, and a company has an asset of $1,000,000 that it could
use as security on a loan, the lender would issue a loan of up to only $850,000.

African Development Bank - ADB

What Does African Development Bank - ADB Mean?


A financial institution comprising 53 African and 24 non-African countries which
promotes economic and social progress in Africa through loans, equity investments and
technical assistance. Structurally, the ADB Group includes the African Development
Bank, the African Development Fund and the Nigeria Trust Fund. Established in 1964
and headquartered in Tunisia, the Bank has provided a cumulative $55 billion in loans
and grants in the region.

Investopedia explains African Development Bank - ADB


The ADB has been praised for its role in the fight against HIV/AIDS on the African
continent, but its operations have also been criticized for being less than
transparent. Some observers complain that the ADB emphasizes large infrastructure
projects at the expense of smaller, cheaper options that may produce more energy with
greater benefit to the continent’s poor.

Agent Bank

What Does Agent Bank Mean?


A bank that acts in some capacity on behalf of another bank. It can mean any of three
types of bank:
(1) The bank in a loan syndicate that advises other participating banks of advances taken
and changes in interest rates for a foreign or domestic borrower
(2) A bank that participates in the credit card program of another bank by issuing credit
cards and performing other duties (excluding financing card receivables)
(3) A foreign bank doing business in the U.S. on behalf of its parent bank, performing
such tasks as issuing international letters of credit, but not accepting deposits
Also known as an "agency bank."

Investopedia explains Agent Bank


A syndicate manager will receive a mandate from a borrower to arrange a syndicated
loan. After the agreement closes, the duties of the syndicate manager end. At that point,
the syndicate manager is usually appointed the agent bank, which coordinates the loan
between the borrower and participating banks.

Agreement Corporation

What Does Agreement Corporation Mean?


A type of bank chartered by a state to engage in international banking. The bank “agrees”
with the Federal Reserve Board (FRB) to limit its activities to those allowed an Edge Act
corporation.

Investopedia explains Agreement Corporation


In 1916, Congress passed the Agreement Corporation Act, which gave national banks the
right to invest a portion of their capital and surplus in state-chartered banks and
corporations that would conduct international business. The state-chartered bank had to
enter into an agreement with the FRB to be bound by its rules and regulations.

The Agreement Corporation Act produced little activity, so in 1919 Congress passed the
Edge Act that authorized the FRB to charter corporations to engage in international
banking. Both laws have undergone many changes since passage, and many of their
restrictions have been relaxed.

Agricultural Credit

What Does Agricultural Credit Mean?


Any of several credit vehicles used to finance agricultural transactions, including loans,
notes, bills of exchange and banker's acceptances. These types of financing are adapted to
the specific financial needs of farmers, which are determined by planting, harvesting and
marketing cycles.

Short-term credit finances operating expenses, intermediate-term credit is used for farm
machinery, and long-term credit is used for real-estate financing.

Investopedia explains Agricultural Credit


In the U.S., the Federal Farm Credit System (FFCS) plays a key role in agricultural
credit. Originated in 1916, the FFCS comprises approximately 100 institutions with over
$180 billion in assets and provides an estimated 35% of the real-estate and non-real-
estate borrowing needs of U.S. farmers.

Algorithm

What Does Algorithm Mean?


A set of rules for accomplishing a task in a certain number of steps. One common
example is a recipe, which is an algorithm for preparing a meal. Algorithms are essential
for computers to process information. As such, they have become central to our daily
lives, whether ordering a book online, making an airline reservation or using a search
engine.

Investopedia explains Algorithm


Algorithms are now used throughout the financial world in areas like loan pricing, stock
trading and asset-liability management. For example, algorithmic trading, known as
"algo," is used for deciding the timing, pricing and quantity of stock orders.

All Savers Certificate

What Does All Savers Certificate Mean?


A type of nontaxable certificate of deposit account with a duration of one year that was
used primarily by thrift institutions to build funds for mortgage lending. All Savers
Certificates were authorized by the Economic Recovery Tax Act of 1981.
Investopedia explains All Savers Certificate
The Economic Recovery Tax Act of 1981 (ERTA, or the Kemp-Roth Tax Cut) reduced
individual income tax rates, accelerated expensing of depreciable property and created
incentives for small businesses and savings. Under terms of the Act, All Savers
Certificates were issued only between October 1, 1981, and December 31, 1982. The
minimum deposit was $500 and provided a fixed rate tied to Treasury bills. Holders
received a one-time exemption from federal income tax of up to $1,000 on earned interest
($2,000 on a joint return).

Allowance For Bad Debt

What Does Allowance For Bad Debt Mean?


A valuation account used to estimate the portion of a bank’s loan portfolio that will
ultimately be uncollectible. When a loan goes bad, the asset is removed from the books
and the allowance for bad debt is charged for the book value of the loan.

Also known as "loan-loss reserve."

Investopedia explains Allowance For Bad Debt


The allowance-for-bad-debt account is needed because the face value of a bank's loans
are not the actual value, since a certain portion of those assets can be reasonably
predicted to go bad.

Increases to the allowance for bad debt are made by periodic loan-loss provisions, which
replenish the allowance and are recorded on the income statement as an expense. The use
of the allowance method tends to smooth bank earnings, which otherwise might undergo
unusual fluctuations when loans that have deteriorated over long periods of time are
charged off together in a single period.

Altered Check

What Does Altered Check Mean?


A check or another negotiable instrument that has been materially and maliciously altered
to effect a fraud. Usually either the name of the payee or the amount of the check is
changed.

Investopedia explains Altered Check


Altered checks are specifically addressed in the Uniform Commercial Code
(UCC) Section 3-407. The term "alteration" is defined as either:
(1) an unauthorized change in an instrument that purports to modify in any respect the
obligation of a party; or
(2) the unauthorized addition of words or numbers or another change to an incomplete
instrument relating to the obligation of a party.

Under the UCC, the liability for an altered check can reside with the various parties
involved - including the customer drawing the check, the bank on which the check is
drawn and the bank that presents the check - depending on the evident negligence.
Ordinarily, a customer needs to examine his or her bank statement and report the loss
within 30 days. Regardless of any negligence by the drawee bank, a customer will be
barred from recovery if he or she does not report the loss within one year.

American Bankers Association - ABA

What Does American Bankers Association - ABA Mean?


The American Bankers Association (ABA) is the largest banking trade association in the
United States. Founded in 1875, the ABA represents banks of all sizes. The ABA offers a
wide range of products and services to its members, in fields such as staff training,
insurance, capital management, asset management, risk/compliance and consulting.

The nine-digit routing numbers seen on every check originate in a system of bank transit
numbers developed by the ABA in 1910.

Investopedia explains American Bankers Association - ABA


The ABA is very active in lobbying Congress on behalf of banking interests. The focus of
its lobbying effort in recent years has been the elimination of the tax-exempt status of
credit unions. Traditionally, the credit union served a small, highly targeted
membership, such as the employees of a company. In recent years, however, credit
unions have been able to greatly expand their fields of membership and potential
customer pools. Many credit unions now have over $1 billion in assets and rival the size
of large banks. The ABA argues that credit unions have become so much like banks that
their tax-exempt status is no longer justified.

American Institute Of Banking - AIB

What Does American Institute Of Banking - AIB Mean?


Founded in 1907, the American Institute of Banking (AIB) is a provider of education and
training to the banking industry. More than 150,000 bankers participate in its programs
each year.

Investopedia explains American Institute Of Banking - AIB


The AIB is under the auspices of the American Bankers Association (ABA), and all AIB
programs are offered through local ABA providers. Its programs include core courses in
banking and business fundamentals as well as specific topics like retail banking;
commercial, consumer, and mortgage lending; marketing and compliance.

American National Standards Institute -


ANSI

What Does American National Standards Institute - ANSI Mean?


An organization that oversees the creation and dissemination of norms and standards in
almost every U.S. business sector. ANSI is also actively involved in the accreditation
programs that oversee those standards, including ISO 9000 (quality) and ISO 14000
(environmental) management systems. It was founded in 1918 by five engineering
societies and three government agencies; it is now a nonprofit organization.

Investopedia explains American National Standards Institute - ANSI


Under ANSI's supervision, Accredited Standards Committee X9 (ASC X9) oversees the
global financial services industry and is responsible for all financial-services standards in
the U.S. In that capacity, ASC X9 plays a key role in the introduction of new banking
technologies. Examples include standards for paper and electronic checks, credit card
magnetic stripes and ATM cards. The American Bankers Association provides
administrative support for ASC X9 standards.

American Rule

What Does American Rule Mean?


A rule in law and economics that says attorney fees should be paid by each party
involved in litigation - even the party that wins the case. An exception to the American
rule can occur when the court awards the winning party compensation to cover fees
against a losing party that has acted in bad faith.

Investopedia explains American Rule


The American Rule contrasts with the English Rule, in which the losing party pays the
fees for the winning party. Most countries outside the U.S. operate under the English rule.
Some people argue that the American Rule allows plaintiffs to threaten other parties with
expensive lawsuits in order to get a favorable settlement.

Amount Financed

What Does Amount Financed Mean?


The actual amount of credit made available to a borrower in a loan, as defined by
Regulation Z disclosure requirements of the Truth In Lending Act. Specifically, it is the
amount of the loan principal, less prepaid finance charges (loan origination fees, so-called
points, adjusted interest, etc.) and any required deposit balance. The amount financed is
used to calculate the annual percentage rate.

Investopedia explains Amount Financed


The purpose of the Truth In Lending Act, passed in 1968, is to standardize the disclosures
made to borrowers concerning the terms of a loan, most notably in the way costs are
calculated. The Act prescribes that a Truth In Lending Disclosure Statement - which
includes the amount financed - be provided to the consumer within three days of applying
for a loan. The Statement enables borrowers to compare the costs of loans among
different lenders.

Announcement Effect

What Does Announcement Effect Mean?


The impact on markets from the news that a change will occur at some future date. It can
be used as a general term for the reaction to any development that affects trading, such as
a change in dividend policy or a stock split. It is most often used, however, to describe
investor reactions to changes in monetary policy, such as a hike or cut in a key interest
rate level.

Also known as a "signal effect."

Investopedia explains Announcement Effect


Stock traders eagerly await the announcement of changes in Federal Reserve policy, and
stock volumes are notably higher on so-called Fed days; depending on the investment
environment, volatility may be substantially heightened as well. Researchers have also
found that trading on the day preceding announcements of Fed policy is relatively calm.

Annual Clean-Up

What Does Annual Clean-Up Mean?


A banking practice that requires a borrower to pay off all balances of any renewable lines
of credit and keep them at zero for 30 to 60 days or so. Although the annual clean up is a
long-time tradition, it's becoming less common nowadays. Clean-ups aren't usually
required on secured credit lines.

Also known as the clean-up requirement.

Investopedia explains Annual Clean-Up


The annual clean up usually takes place when the customer is flush with cash. For
instance, after a peak sales period when receivables have mostly been collected and cash
needs for replenishing inventory are low. The clean-up shows that credit lines are being
used only during periods of peak cash requirements and are not needed for the normal
financing of the business.

Anticipated Balance

What Does Anticipated Balance Mean?


The amount that a savings account will have at some future date, or that a time deposit
will have at maturity, assuming no withdrawals or additional deposits occur.

Investopedia explains Anticipated Balance


The calculation of the anticipated balance assumes compound interest.

Anticipated Interest

What Does Anticipated Interest Mean?


The amount of interest that a savings account will earn at some future date, assuming no
deposits or withdrawals during the intervening period.

Investopedia explains Anticipated Interest


Anticipated interest assumes and includes compound interest.

Article XII Company

What Does Article XII Company Mean?


An investment company chartered under Article XII of the New York State Banking
Law. Established to finance international banking transactions, they are usually owned by
foreign banks. Article XII companies typically engage in businesses like those of
internationally oriented commercial banks, such as lending to foreign borrowers, foreign
exchange trading and the issuance of letters of credit. The difference is that Article XII
companies don't usually buy equities. Moreover, these companies cannot accept deposits
in New York State, and only outside the state with the approval of the New York State
Banking Board. They are exempt from the Federal Reserve System's reserve
requirements.

Investopedia explains Article XII Company


Article XII companies are described by New York State's Banking Department as "being
unique to New York." The laws that provide for investment companies date from 1890.
For many years, the policy of the State's Banking Department policy was to allow foreign
banks to establish investment companies only if there were no other practical means of
entering the New York market. This explains the existence of many of the current Article
XII companies.

Asian Development Bank

What Does Asian Development Bank Mean?


Founded in 1966, its headquarters are in Manila, Philippines. The Asian Development
Bank's primary mission is to foster growth and cooperation among countries in the Asia-
Pacific Region. It has been responsible for a number of major projects in the region,
raising capital through the international bond markets.

Investopedia explains Asian Development Bank


The two largest shareholders of the Asian Development Bank are the United States and
Japan. Although the majority of the Bank's members are from the Asia-Pacific region, the
industrialized nations are also well represented. Regional development banks usually
work in harmony with both the International Monetary Fund and the World Bank in their
activities.

Asset Quality Rating

What Does Asset Quality Rating Mean?


A review or evaluation assessing the credit risk associated with a particular asset. These
assets usually require interest payments - such as a loans and investment portfolios. How
effective management is in controlling and monitoring credit risk can also have an affect
on the what kind of credit rating is given.

Investopedia explains Asset Quality Rating


Many factors are considered when rating asset quality. For example, consideration must
be put into whether or not a portfolio is appropriately diversified, what regulations or
rules have been put in to place to limit credit risks and how efficiently operations are
being utilized. Typically, a rating of one shows that asset quality is good and there is very
little credit risk, while a rating of five can signify that there are major asset
quality problems and issues that need to be managed.

Asset Sales

What Does Asset Sales Mean?


A sale of bank receivables by a bank to another party. Asset sales are often accomplished
through the sales of individual loans or pools of whole loans. Asset sales are nonrecourse
sales that are also sometimes accomplished through the securitization of the bank's
receivables. These types of transactions are used to mitigate asset-related risk, obtain
free-cash flows and for liquidation requirements, among other reasons.

Investopedia explains Asset Sales

Asset sales are a complex transaction from an accounting perspective. An asset sale is
classified as such if the seller gives the buyer control of the property after payment is
made. There cannot be further recourse to the buyer; this characteristic will cause the
transaction to be regarded as financing.

Asset-Backed Commercial Paper - ABCP

What Does Asset-Backed Commercial Paper - ABCP Mean?


A short-term investment vehicle with a maturity that is typically between 90 and 180
days. The security itself is typically issued by a bank or other financial institution. The
notes are backed by physical assets such as trade receivables, and are generally used for
short-term financing needs.
Investopedia explains Asset-Backed Commercial Paper - ABCP
A company or group of companies looking to enhance liquidity may sell receivables to a
bank or other conduit, which, in turn, will issue them to its investors as commercial
paper. The commercial paper is backed by the expected cash inflows from the
receivables. As the receivables are collected, the originators are expected to pass the
funds to the bank or conduit, which then passes these funds on to the note holders.

Asset-Backed Commercial Paper Money


Market Fund Liquidity Facility -
AMLF

What Does Asset-Backed Commercial Paper Money Market Fund Liquidity Facility -
AMLF Mean?
A lending program created by the Federal Reserve Board on September 19,
2008, that will provide new funding to U.S. financial institutions until October 30, 2009.
The Asset-Backed Commercial Paper Money Market Fund Liquidity Facility (AMLF)
provides funding that allows financial institutions to purchase asset-backed commercial
paper (ABCP) from money market mutual funds (MMMF) to prevent default on
investors' redemptions.

Investopedia explains Asset-Backed Commercial Paper Money Market Fund Liquidity


Facility - AMLF
The acronym AMLF is generated by taking the first letters from the first two acronyms
ABCP (asset-backed commercial paper) and MMMF (money market mutual fund). The
letters "AM" are then combined with the acronym for liquidity facility, "LF".

Asset-Liability Committee - ALCO

What Does Asset-Liability Committee - ALCO Mean?


A risk-management committee in a bank or other lending institution that generally
comprises the senior-management levels of the institution. The ALCO's primary goal is
to evaluate, monitor and approve practices relating to risk due to imbalances in the capital
structure.

Investopedia explains Asset-Liability Committee - ALCO


For example, the ALCO will have responsibility for setting limits on the arbitrage of
borrowing in the short-term markets, while lending long-term instruments. Among the
factors considered are liquidity risk, interest rate risk, operational risk and external events
that may affect the bank's forecast and strategic balance-sheet allocations. The ALCO
will generally report to the board of directors and will also have regulatory reporting
responsibilities.

Assignment Of Proceeds

What Does Assignment Of Proceeds Mean?


A document transferring all or part of the proceeds from a letter of credit to a third party
beneficiary. To receive an assignment of proceeds, the beneficiary of a letter of credit is
required to submit, in writing, a request to the bank to assign the funds to a different
person or company.

Investopedia explains Assignment Of Proceeds


Once approved, the bank will disperse the funds accordingly, pending the fulfillment of
any requirements set forth in the letter of credit. However, if the principal party does not
meet the obligations outlined in the letter of credit, no assignment will take place.

Associate Bank

What Does Associate Bank Mean?


A bank that is affiliated, usually through membership, in a regional or national
organization, such as a clearing house, an electronic payments network or a bank card
network, such as Visa or MasterCard. There are usually different classes of membership
in regional and national associations, which correlate with shares owned or fees paid.
Investopedia explains Associate Bank
The term "associate bank" is also used to describe banks that accommodate each other's
customers across geographic or national lines when each bank's geographic reach is
limited. For example, a small state bank in the United States may have an associate
relationship with a bank in London, in order to accommodate a customer traveling there.

Australian Bankers Association (ABA)

What Does Australian Bankers Association (ABA) Mean?


An association of banks that work on behalf of its member financial institutions to
provide analysis and advice on public policy regarding banking and financial institutions.
It also works within its member organization to improve the quality of service that banks
and other financial institutions provide.

Investopedia explains Australian Bankers Association (ABA)


The association also looks to develop industry codes and standards, reform the banking
payment system, improve security, improve banking conduct and disclosure, improve
financial literacy and work on taxation reform.

Australian Financial Markets Association


(AFMA) Bank-Bill Reference Rate
(BBSW)

What Does Australian Financial Markets Association (AFMA) Bank-Bill Reference


Rate (BBSW) Mean?
The bank bill interest rate is the wholesale interbank rate within Australia and is
published by the Australian Financial Markets Association (AFMA). It is the borrowing
rate among the country's top market makers, and is widely used as the benchmark interest
rate for financial instruments.
Investopedia explains Australian Financial Markets Association (AFMA) Bank-Bill
Reference Rate (BBSW)
The bank bill interest rate is Australia's equivalent of LIBOR or SIBOR and is used as a
reference rate in much the same way. For instance, a variable floating rate may quote 100
basis points over LIBOR, whereas in Australia they may use 100 basis points over the
BBSW. Although frequently abbreviated to "bank bill rate", the actual term is the "bank
bill swap interest rate", hence the abbreviation BBSW.

Authorization Code

What Does Authorization Code Mean?


A generic term that refers to a code or password that identifies the user as authorized to
purchase, sell or transfer items, or to enter information into a security-protected space.
For example, an authorization code would be required for a vendor to process a credit
card transaction on behalf of a customer paying for goods.

Investopedia explains Authorization Code


Authorization codes are used for any transaction or entry that has restrictions on which
users are entitled to access. For example, only certain individuals will have the authority
to approve major expenses, and will probably have an authorization code in the
company's records or on a case-by-case basis to complete any approval.

An authorization code is commonly attached to credit card transactions, not only to signal
a merchant that the transaction is approved, but also to help identify the transaction in
follow-up examinations, such as disputed transactions.

Authorized Settlement Agent

What Does Authorized Settlement Agent Mean?


A bank that is authorized to submit checks and other cash items to the Federal Reserve
for collection. The 12 reserve banks collect and pay checks for depository institutions;
payments are also made through the automated clearing house (ACH) network and
private clearing arrangements.
Investopedia explains Authorized Settlement Agent
The Federal Reserve plays a primary role in the in the U.S. payments system. Federal
Reserve payment services are available to all depository institutions, including smaller
institutions in remote locations that other providers might choose not to serve.

Auto Supplier Support Program (Auto


SSP)

What Does Auto Supplier Support Program (Auto SSP) Mean?


This is a $5 billion program funded by the U.S. Treasury intended to ensure the
availability of parts to the U.S. auto industry. Due to the tenuous position of the large
U.S. automakers in 2008 and 2009, the Auto Supplier Support Program (Auto SSP) was
just one of many intended to help stabilize the financial crisis in the auto industry to give
those companies time to restructure their operations. Both General Motors and Chrysler
opted into the program.

Investopedia explains Auto Supplier Support Program (Auto SSP)


Under the program, the government substituted its own credit to certain qualified
suppliers for qualified receivables arising from new auto production by the U.S.
automakers. Because the financial demise of the auto makers was deemed imminent,
suppliers were reluctant to extend credit to them, thus bringing production to a halt. For a
fee, the U.S. government guaranteed payment to qualified suppliers, or would allow such
suppliers to sell their qualified receivables for a modest discount.

Automated Teller Machine - ATM

What Does Automated Teller Machine - ATM Mean?


An electronic banking outlet, which allows customers to complete basic transactions
without the aid of a branch representative or teller.

There are two primary types of automated teller machines, or ATMs. The basic units
allow the customer to only withdraw cash and receive a report of the account's balance.
The more complex machines will accept deposits, facilitate credit card payments and
report account information. To access the advanced features of the complex units, you
will usually need to be a member of the bank that operates the machine.

Investopedia explains Automated Teller Machine - ATM


ATMs are scattered throughout cities, allowing customers easier access to their accounts.
Anyone with a debit or credit card will be able to access most ATMs. Using a machine
operated by your bank is usually free, but accessing funds through a unit owned by a
competing bank will usually incur a small fee.

Automated Underwriting

What Does Automated Underwriting Mean?


A computer-generated loan underwriting decision. Using completed loan application
information, an automated underwriting systems retrieves relevant data, such as a
borrower’s credit history, and arrives at a logic-based loan decision. Some
applications may be referred to manual underwriting, and some inputs - such as income
and assets - must be verified at a later date.

Investopedia explains Automated Underwriting


Automated underwriting engines can provide near-instantaneous loan approval or denial
decisions; therefore, implementing automated underwriting systems can save a
considerable amount of time, as manual underwriting can take as long as 60 days to
complete.

In addition to the time savings, automated underwriting is preferred because it is based on


algorithms, eliminating human bias. Freddie Mac maintains and markets a large
automated underwriting engine known as Loan Prospector, and Fannie Mae has an
automated underwriting engine known as Desktop Underwriter.

Automatic Bill Payment

What Does Automatic Bill Payment Mean?


Routine, automated payments made from a banking, brokerage or mutual fund account to
vendors. The automated function can be initiated either with the source of funds (the
bank with the checking account) or the vendor to whom payment is owed. Automatic bill
payments occur over an electronic payment system, such as the Automated Clearing
House (ACH).

Investopedia explains Automatic Bill Payment


Regular, even payments (such as instalment loans) can be automated quite easily from the
source of funds (such as a checking account.) This involves making arrangements with
the bank holding the checking account to make the exact payment each month. The set of
instructions is typically created online by the account holder.

More frequently, this power is given to the vendor (the electric company, for example) to
charge the checking account for whatever amount is owed that particular month. If the
vendor is not already familiar to the bank, the bank may ask the account holder to have
the vendor pre-approved for this function. In most instances, however, it is the account
holder who ultimately decides whether the automatic bill payment happens each
month; he or she has the power to turn the automatic payment function off or to postpone
the payment.

Automatic Transfer Of Funds

What Does Automatic Transfer Of Funds Mean?


A standing banking arrangement whereby transfers from a customer's account are made
on a regular, periodic basis without further instruction or action by the customer. The
most common automatic transfer of funds are through "sweep" instructions, whereby all
excess funds in one account are swept into another account. This zero-balance account is
mostly used by corporations with many subsidiaries.

Investopedia explains Automatic Transfer Of Funds


Automatic transfers are often used for the regular movement of funds from a checking
account to a savings account, or from the account of one spouse to another or to a
child. Another common use of these transfers is for overdraft protection, whereby funds
are moved from a higher-interest-earning account to cover payments due in another
account.

Automatic transfers may also be used for periodic equal payments, such as for mortgages
or other loan payments.

Automatic Transfer Service - ATS


What Does Automatic Transfer Service - ATS Mean?
A banking service offered to customers that has both a general and specific meaning. On
a general level, it can mean any automatic transfer of funds between customer accounts.
For example, a regular transfer from a checking account to pay off a bank loan, or a
monthly transfer from a checking account to a savings account.

More specifically, it describes the overdraft protection provided when there is an


automatic transfer of funds from a customer's savings account to his or her checking
account when there are insufficient funds to cover unpaid checks or maintain a minumum
balance. Ordinarily, the bank will transfer the exact amount of funds required to cover
unpaid checks. The customer avoids any overdraft fees and all the hassle associated with
returned checks.

Investopedia explains Automatic Transfer Service - ATS


ATS accounts were first introduced by savings and loans and mutual savings banks in the
1970s to compete with traditional commercial banks. According to the Federal
Reserve, in defining the money stock ATS accounts are included in M1, which also
includes travelers' checks, demand deposits and other checkable deposits (i.e., negotiable
order of withdrawal (NOW) accounts and credit union share drafts).

Given the low rates of interest paid on checking accounts, these arrangements are the
norm rather the exception, particularly for checking accounts at brokerage firms.
Automatic transfer accounts are available to individuals and sole proprietors;
organizations, units of government and other entities are not eligible for these accounts.

Availability

What Does Availability Mean?


Funds that have been deposited by third-party check into a customer's bank
account. These funds are typically not usable by the customer until the check clears, or
they become "good funds."

Investopedia explains Availability


Third-party checks are available according to a schedule that relies on the location of the
bank on which the check is drawn. The maximum number of days that a check can be
held is set by the Expedited Funds Availability Act, assuming the check is good.
Availability Schedule

What Does Availability Schedule Mean?


The number of days it takes for a third-party check deposited into a customer's checking
account to become available to the customer. While the funds are unavailable until
cleared, they are referred to as "checks held".

Investopedia explains Availability Schedule


The maximum number of days that funds can be held by banks is dictated by the
Expedited Funds Availability Act, which was enacted by Congress in 1987 and
subsequently became a Federal Reserve regulation. Many banks will make checks
available before the maximum number of days is up.

Aval

What Does Aval Mean?


A guarantee added to a debt obligation by a third party who ensures payment should the
issuing person default.

Investopedia explains Aval


The debt obligation could be a note, bond, promissory note, or draft. The third party
providing the aval is usually a bank. Since avals can be forged, caution should be taken
when accepting these notes. Banks usually only provide an aval to issuers with very good
credit ratings.

The process of avalizing is performed mainly in Europe. In the United States, banks have
restrictions as to what instruments may be provided an aval.

Average Collected Balance


What Does Average Collected Balance Mean?
The average balance of collected funds (less any uncleared or uncollected deposits) in a
bank account over a specified period, usually one month. The average collected
balance is calculated by adding the daily collected balance and dividing by the number of
days in the period.

Investopedia explains Average Collected Balance


The average collected balance is used to determine the amount of interest to be paid on a
monthly balance, since uncollected funds do not earn interest. For most individuals, the
difference between the average daily balance and average collected balance will be small,
but for businesses it may be very large.

Average Daily Balance Method

What Does Average Daily Balance Method Mean?


A finance/accounting method where costs (and interest) are based on the amount(s)
owing at the end of each day.

Investopedia explains Average Daily Balance Method


Most department store credit cards use this system. Interest payable is calculated daily,
this results in less interest payable because payments on the card lower the interest
payable immediately.

We should note that the interest rate on department store credit cards are usually higher
than normal credit cards, so this isn't to say that there is a huge interest savings.

Average Daily Float

What Does Average Daily Float Mean?


1. The dollar amount of checks or other negotiable instruments that are in the process of
collection over a certain period, divided by the number of days in the period; or
2. The number of company shares that are actually outstanding and available for trading
on the public market on an average daily basis.

Investopedia explains Average Daily Float


The banking term for float is most commonly applied to banks, although it can also refer
to large corporations who have both checks deposited and paid checks outstanding.

As a trading term, the average daily float is a measure of the liquid market for a
company's stock. If a company is closely held and only a small portion of the stock is
trading in the public markets, it will affect the bid/ask spread and a number of other
aspects of how the stock is valued.

Average Outstanding Balance

What Does Average Outstanding Balance Mean?


The unpaid, interest-bearing balance of a loan or loan portfolio averaged over a period of
time, usually one month. The average outstanding balance refers to any term, instalment,
revolving or credit card debt on which interest is charged.

Investopedia explains Average Outstanding Balance


The average outstanding balance on credit cards and loans is a critical factor in a
consumer's credit rating. Average outstanding balances on credit cards are reported to
credit agencies monthly on active accounts, along with any amounts that are past due.

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