Chapter 17 Flashcards
capital adequacy management
Managing the amount
of capital the bank should maintain and then
acquiring the needed capital.
credit risk
: The risk arising from the possibility that
the borrower will default.
deposit outflows
Losses of deposits when depositors
make withdrawals or demand payment.
discount loans
A bank’s borrowings from the Federal
Reserve System
discount rate
: The interest rate that the Federal
Reserve charges banks on discount loans.
equity multiplier
The amount of assets per dollar of
equity capital.
liability management
The acquisition of funds at low
cost to increase profits.
liquidity management
The decision made by a bank
to maintain sufficient liquid assets to meet the
bank’s obligations to depositors
loan commitment
A bank’s commitment (for a specified future period of time) to provide a firm with
loans up to a given amount at an interest rate
that is tied to some market interest rate.
loan sale
The sale under a contract (also called a
secondary loan participation) of all or part
of the cash stream from a specific loan, thereby
removing the loan from the bank’s balance
sheet.
money center banks
Large banks in key financial centers.
net interest margin (NIM)
The difference between
interest income and interest expense as a percentage of assets.
off balance sheet activities
Bank activities that
involve trading financial instruments and the
generation of income from fees and loan sales, all
of which affect bank profits but are not visible on
bank balance sheets.
operating expenses
operating income
