Dictionary of Banking Terms

Preface

Consumers today have more financial services available to them and more places to do their banking than ever before. Indeed, the very definition of a bank and the services provided has changed dramatically in die last 20 years. It's possible that your federally insured neighborhood bank or savings association might be the same institution you have known since the day you opened a checking account and took out a mortgage to buy your first house. On the other hand, you might do your banking at a credit union, a brokerage firm operating as a financial holding company, or with an Internet bank located across the country but accessible 24 hours a day from your home computer.

The exponential growth in financial services-traditional insured deposit accounts, home equity loans and mortgages, plus mutual funds, annuities, and brokerage services---didn't occur overnight. It is the product of global competition, mass marketing, and financial deregulation. The competitive market has been completely made over, and the financial safety net protecting depositors' assets strengthened by improvements in financial regulation of banks. The Depression-era Glass-Steagall Act, barring cross-ownership of financial institutions and separating commercial banking from investment banking, was finally repealed by the 1999 financial modernization law, the Gramm-Leach-Bliley Act. Convergence is the hallmark of this revitalized new financial services market, now about to enter a new era as commercial banks and thrift institutions can freely associate with securities firms and insurance companies.

Deregulation of the securities, banking, and savings industries, culminating in the financial modernization law, is a work in progress with its share of bumps in the road. In the 1980s, financial losses caused by government oversight and bad real estate investments in the savings and loan industry led to the 1989 savings and loan bailout, the costliest government bailout in U.S. history. An international agreement among the world's bankers, setting minimum capital requirements starting in 1992, and improvements in federal deposit insurance coverage adopted a year earlier went a long way toward restoring depositor and investor confidence in the banking system.

The financial services revolution can be felt most directly in its impact on the everyday vocabulary of banking. In this thoroughly revised Dictionary of Banking Terms, many entries have been updated to maintain consistency with current legislation, banking regulation, and industry practice. Some obsolete entries have been deleted and newer entries added whore appropriate. The list of common industry acronyms and abbreviations at the back of the book bas been expanded. A new feature, a table listing the world's currencies by country, has been added.

The author is indebted to several individuals for their numerous helpful comments and suggestions in bringing the dictionary into final form.

Donald Simonson from the University of New Mexico and Ben Weberman made extensive comments on the first and second editions. Dr Irwin Keller made numerous suggestions for improving the text in the first edition and subsequent updates of the dictionary. A special note of thanks goes to my wife Kathy for reviewing each edition, and also for her patience and understanding over the years.

Thanks also to ABA Banking Journal, American Banker, American Bankers Association, Associated Credit Bureaus, Bank Administration Institute, Bank for International Settlements, Bank Rate Monitor, Bettinger & Leach, Bond Market Association, Chase Manhattan Bank NA, The European Commission, The Fair Isaac Companies, Fannie Mae, Federal Deposit Insurance Corporation, Federal Reserve Bank of New York, Federal Reserve Board of Governors, Financial Services Technology Consortium, Future Banker, MasterCard International, Mortgage Bankers Association, National Automated Clearing House Association, New York Clearing House Association, Stradley Ronon Stevens & Young LLP, Mayer Brown & Platt, National Credit Union Administration, Office of the Comptroller of the Currency' Office of Thrift Supervision, T. Rowe Price Associates, Prudential Securities, Society for Worldwide Interbank Financial Telecommunication, Standard & Poor's, and Visa International.

Thomas P. Fitch