Banking Chap 13 Managing Nondeposit Liabilities

management strategy whose first priority is making loans to all those customers who meet the lender's quality standards and from whom positive earnings are expected

use of borrowed funds to meet liquidity needs, in which a fin inst. attracts the volume of liquidity it needs by raising or lowering the rate of interest it is willing to pay on borrowed funds

domestic source of reserves in which a depository inst. can borrow the excess reserves held by other inst.s; also known as same-day money because these funds can be transferred instantaneously by wire from the lending inst. to the borrowing inst.

money market instrument that involves the temporary sale of high-quality assets (usually government securities) accompanied by an agreement to buy back those assets on a specific future date at a predetermined price or yield

dept within each Fed bank that lends legal reserves to eligible institutions for comparatively short periods of time

type of interest-bearing deposit that may be sold to other investors in the secondary market any number of times before it reaches maturity

difference between current and projected credit and deposit flows that creates a need for raising additional reserves when the gap is negative or for profitably investing any excess reserves that may arise when the gap is positive

probability that rising or falling interest rates will adversely affect the margin of interest revenues over interest expenses or result in decreasing the value of net worth

possibility that lenders may not have the funds to loan or be willing to accomodate every qualified borrower when credit is requested

A loan between banks that lend each other money for very short periods of time.

A loan from a bank for a specific amount that has a specified repayment schedule and a floating interest rate. This type of loan almost always mature between one and 10 years.

an agreement made by a regular borrower with his or her lender, giving to the latter continued rights (as of collateral) for repeated transactions.

Credit rate which applies to loans extended from a central bank to a financial institution for a short duration, usually overnight. Banks that borrow at this credit rate are generally in good financial shape. This credit rate is not to be confused with the prime rate.

Credit rate which applies to short-duration loans made to a financial institution from a Central Bank. This type of credit is designed to provide liquidity to a bank that is having financial difficulties, and is provided to banks that do not qualify for the primary credit rate.

Any type of credit arrangement that permits corporate borrowers to consistently pay their overhead and other expenses despite seasonal components of revenue generation. This type of credit is usually presented as a line of credit and then becomes classified as revolving credit.

This type of credit can also refer to a type of credit offered by the Federal Reserve discount window that can last for up to 90 days.

An institution, usually a country's central bank, that offers loans to banks or other eligible institutions that are experiencing financial difficulty or are considered highly risky or near collapse. In the U.S. the Federal Reserve acts as the lender of last resort to institutions that do not have any other means of borrowing and whose failure to obtain credit would dramatically affect the economy.