Chapter

Glossary

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
November 2012
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Additional Tier 1 capital

The sum of (1) instruments issued by banks that meet the criteria for inclusion in Additional Tier 1 capital (and are not included in Common Equity Tier 1); (2) stock surplus (share premium) resulting from the issue of instruments included in Additional Tier 1 capital; (3) instruments issued by consolidated subsidiaries of the bank and held by third parties that meet the criteria for inclusion in Additional Tier 1 capital and are not included in Common Equity Tier 1; and (4) applicable regulatory adjustments. See also Common Equity Tier 1 and Tier 1 capital.

Advanced Basel II approaches

Basel II approach in which banks can use their internal ratings systems or models as inputs in the calculation of required capital for credit, market, and operational risks.

Asset-backed security (ABS)

Any security, including commercial paper, that is collateralized by the cash flows from a pool of underlying assets, such as loans, leases, and receivables. When the cash flows are collateralized by real estate, an ABS may be called a mortgage-backed security (MBS); when the cash flows are divided into tranches, an ABS may be called a structured credit product.

Asset manager

A financial institution that manages assets on behalf of investors.

Asset price bubble

A sharp rise in the price of an asset above its economically fundamental value over a specific period for reasons other than random shocks.

Asset restructuring

Changing the terms of payment on a loan or other lending instrument by granting a concession to the borrower. This may include: (1) the transfer from the borrower to the bank of real estate, receivables from third parties, other assets, or an equity interest in the borrower in full or partial satisfaction of the loan; (2) a modification of the loan terms, such as a combination of a reduction in an agreed-upon interest rate, an extension of the final maturity, a reduction of principal, or a reduction of accrued interest; or (3) acceptance by the bank of the conversion of the borrower’s debt into equity to be held by the bank, in full or partial settlement of a debt.

Basel II

A 2004 accord among national bank supervisory authorities (the Basel Committee on Banking Supervision) that revised the Committee’s 1988 adequacy standards with regard to bank capital for credit risk and introduced capital requirements for operational risk. Basel II made the capital requirement more sensitive to variations in the riskiness of the bank’s assets. Basel II also revised its recommended supervision processes and increased disclosure by banks. Pillar 1 of the Basel Accord covers the minimum capital adequacy standards for banks; Pillar 2 focuses on enhancing the supervisory review process; and Pillar 3 encourages market discipline through increased quantitative and qualitative disclosure of banks’ risk exposures and capital adequacy.

Basel III

A comprehensive set of reform measures introduced in the aftermath of the global financial crisis to improve the banking sector’s ability to absorb financial and economic shocks, enhance banks’ risk management and governance, and increase banks’ transparency and disclosure. These measures revise the existing definition of regulatory capital under the Basel Accord, enhance capital adequacy standards, and introduce, for the first time, minimum liquidity adequacy standards for banks. See also Capital adequacy ratio (CAR).

Basel Committee on Banking Supervision (BCBS)

A committee of banking supervisory authorities that provides a forum for regular cooperation on banking supervisory matters. Its objective is to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide. The BCBS also develops guidelines and supervisory standards in various areas, including the international standards on capital adequacy, the Core Principles for Effective Banking Supervision, and the Concordat on cross-border banking supervision.

Call (put) options

A financial contract that gives the buyer the right, but not the obligation, to buy (sell) a financial instrument at a set price on or before a given date.

Capital adequacy ratio (CAR)

The ratio of regulatory capital to risk-weighted assets of a financial institution. Under Basel III, regulatory capital is the sum of common equity and additional Tier 1 capital and Tier 2 capital. See also Basel III.

Capital Requirements Directive (CRD)

The Directive issued by the European Union for the financial services industry that introduced a supervisory framework reflecting the Basel II rules on capital measurement and capital standards. See also Basel II.

Carve outs

Exceptions to the Basel II or Basel III rules.

Central counterparty (CCP)

An entity that interposes itself between counterparties, becoming the buyer to sellers and the seller to buyers in what would otherwise be bilateral arrangements between sellers and buyers.

Collateral

Assets pledged or posted to a counterparty to secure an outstanding exposure, derivative contract, or loan.

Commercial paper (CP)

An unsecured promissory note with a fixed maturity of 1 to 270 days.

Committee on Payment and Settlement Systems (CPSS)

Committee of the Bank for International Settlements that sets standards for payment systems oversight.

Common Equity Tier 1

The sum of (1) common shares issued by a bank that meet the criteria for classification as common shares for regulatory purposes (or the equivalent for non-joint-stock companies); (2) stock surplus (share premium) resulting from the issue of instruments included in Common Equity Tier 1; (3) retained earnings; (4) accumulated other comprehensive income and other disclosed reserves; (5) common shares issued by consolidated subsidiaries of the bank and held by third parties (i.e., minority interest) that meet the criteria for inclusion in Common Equity Tier 1 capital; and (6) applicable regulatory adjustments. See also Tier 1 capital.

Core Tier 1 capital ratio

The ratio of a bank’s core Tier 1 capital to its total risk-weighted assets (RWA). Core Tier 1 is a similar concept to Common Equity Tier 1 in Basel III, though there are some differences, such as the inclusion of preferred shares in core Tier 1 capital and in regulatory deductions. See also Common Equity Tier 1 and Tier 1 capital.

Counterparty risk

The risk faced by one party in a contract that the other, the counterparty, will fail to meet its obligations under the contract

Credit default swap (CDS)

A credit derivative whose payout is triggered by a “credit event,” often a default. CDS settlements can either be “physical,” whereby the protection seller buys a defaulted reference asset from the protection buyer at its face value, or in “cash,” whereby the protection seller pays the protection buyer an amount equal to the difference between the reference asset face value and the price of the defaulted asset. A single-name CDS contract references a single firm or government agency, whereas CDS index contracts reference standardized indices based on baskets of single-name CDS contracts. See also Derivative.

Credit rating

A measure of the ability of a borrower to meet its financial commitments on a timely basis. Credit ratings are typically expressed as discrete letter grades. For example, Fitch Ratings and Standard & Poor’s use a scale in which AAA represents the highest creditworthiness and D the lowest.

Credit rating agency

A company that assigns credit ratings to borrowers as a measure of their ability to meet their financial commitments on a timely basis.

Credit risk

The risk that a party to a financial contract will incur a financial loss because a counterparty is unable or unwilling to meet its obligations.

Credit spread

The difference in yield between a benchmark debt security and another debt security that is comparable to the benchmark instrument in all respects except that it is of lower credit quality and hence, typically, of higher yield.

Credit-to-GDP ratio

A measure of domestic credit to the private sector as a proportion of gross domestic product (GDP). Domestic credit to the private sector refers to financial resources provided to the private sector, such as through loans, purchases of non-equity securities, trade credits, and other accounts receivable, that establish a claim for repayment. For some countries these claims include credit to public enterprises.

Credit value adjustment (CVA)

The risk of loss caused by changes in the credit spread of a counterparty due to changes in its credit quality (also referred to as the market value of counterparty credit risk). Under Basel II, the risk of counterparty default and credit migration risk were addressed but mark-to-market losses due to credit valuation adjustments were not. Basel III introduced a CVA capital charge in addition to the default risk capital requirements for counterparty credit risk.

Dealer-banks

Term used to identify a set of large financial institutions that are significant dealers in securities and over-the-counter (OTC) derivatives. Dealer banks may have conventional commercial banking operations, and they might also have significant activities in investment banking, asset management, and prime brokerage. They typically operate under the umbrella of holding companies.

Debt-to-equity ratio (D/E)

A financial ratio that measures the extent of leverage in a company and indicates the relative proportion of debt used to finance the company’s assets, compared with shareholders’ equity.

Default fund

A pool of funds established by a central counterparty (CCP), contributed by clearing members to absorb the costs of clearing member nonperformance when the failed clearing member’s margin contributions and the CCP’s first-loss contribution are exhausted.

Deferred tax assets

The amounts of income taxes recoverable in future periods in respect of deductible temporary differences, the carry forward of unused tax losses, and the carry forward of unused tax credits.

Deleveraging

The reduction of the leverage ratio, or the percentage of debt in the balance sheet of a financial institution.

De-risking

Management actions that reduce or lower risk in a firm.

Derivative

A financial instrument with a value dependent on the expected future price of its underlying asset, such as a stock or currency. Examples of derivatives include stock options, currency and interest rate swaps, and credit default swaps.

Difference-in-differences

A method used for estimating the impact of a policy on an outcome by computing a double difference, one over time (before-after) and one across subjects (between beneficiaries and nonbeneficiaries). In its simplest form, this method requires only aggregate data on the outcome variable; no covariates or micro-data are strictly necessary.

Dodd-Frank Act

U.S. law sponsored by Senator Christopher Dodd and Representative Barney Frank and passed on July 21, 2010, designed to improve regulation of the banking sector and prevent a recurrence of a financial crisis in which banks would once again have to be bailed out by taxpayer funding.

Earnings before interest, taxes, depreciation, and amortization (EBITDA)

A measure of a company’s operating cash flow obtained by looking at earnings before the deduction of interest expenses, taxes, depreciation, and amortization. This measure is used to compare profitability of companies after excluding the accounting and financing effects from different asset and capital structures. This measure can be of particular interest to creditors, because it is the income that a company has available for interest payments.

European Financial Stability Facility (EFSF)

A special-purpose vehicle set up by the euro area countries to preserve financial stability. The EFSF has the ability to issue bonds or other debt instruments in the market to raise the funds needed to provide temporary financial assistance to euro area Member States in economic difficulty.

European Stability Mechanism (ESM)

An international organization that provides financial assistance to members of the euro area in financial difficulty in order to safeguard the financial stability of the euro area. The ESM is able to raise funds, for example, by issuing bonds or other debt instruments or entering into arrangements with Member States.

Ever-greening

The provision by banks of additional loans to stressed borrowers to enable them to repay existing loans or interest. This can keep a loan from becoming nonperforming, but further increases a bank’s exposure to a troubled borrower.

Exchange-traded fund (ETF)

An investment fund traded on stock exchanges, most commonly tracking an index, such as the S&P 500. An ETF may be attractive to investors because of its low cost and tax efficiency.

Exchange-traded products

Financial products that are traded on exchanges and other organized trading platforms.

Exchange Rate Mechanism (ERM-II)

Framework for a subset of the European Union Member States that provides currency-fluctuation band limits for their currencies against the euro. A fixed exchange rate and fluctuation band between the non-euro-area member country’s currency and the euro is agreed, and the band is supported by coordinated intervention by the respective central banks. Membership in the ERM-II for at least two years is one of the preconditions for joining the euro area.

Fiscal sustainability

The ability of a government to sustain its current spending, tax, and other policies in the long term without defaulting on its liabilities or promised expenditures.

Forbearance

A temporary postponement of loan payments granted by a lender or creditor. Forbearance gives the borrower time to make up overdue payments on a loan.

Foreign Account Tax Compliance Act

U.S. legislation that requires disclosure of global holdings of assets by U.S. citizens.

Foreign exchange swaps

A simultaneous purchase and sale of identical amounts of one currency in exchange for another with two different value dates.

Free cash flow

A measure of financial performance of a company, calculated as the cash flow generated by the company’s operations minus capital expenditures needed to maintain or expand these operations. It represents the cash flow available for reducing debt or distributing dividends to equity holders.

Funding

In this GFSR, the process by which banks issue or assume liabilities associated with assets on their balance sheets.

Generalized method of moments (GMM)

A generalized statistical method, used primarily in econometrics, for obtaining estimates of parameters of statistical models; many common estimators in econometrics, such as ordinary least squares, are special cases of the GMM. The GMM estimator is robust in that it does not require information on the exact distribution of the disturbances.

Global systemically important banks (GSIBs)

Large banking institutions with global operations that have the potential to impact the financial system. The Financial Stability Board (FSB) has tentatively identified 29 global banks as GSIBs. These banks were provisionally earmarked to be subject to additional loss absorbency, or capital surcharges, from 1 percent to 2.5 percent of the ratio of Common Equity Tier 1 capital to risk-weighted assets.

Global systemically important insurers (GSIIs)

Insurers designated by the International Association of Insurance Supervisors as systemically important.

Goodwill

Identifiable intangible assets acquired in a business combination. It is usually the excess of the purchase price of a company over its book value.

Gross nonperforming loan ratio

This ratio is derived by dividing the value of nonperforming loans by the total value of the loan portfolio. See also Nonperforming loans.

Group of Twenty (G20)

The Group of Twenty Finance Ministers and Central Bank Governors established in 1999 as a forum for officials from systemically important advanced and emerging market economies to discuss key issues related to the global economy. It consists of leaders from the European Union and the following 19 countries: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, Republic of Korea, Turkey, the United Kingdom, and the United States.

Hedge fund

An investment pool, typically organized as a private partnership, that faces few restrictions on its portfolio and transactions. Hence, compared with more regulated financial institutions, hedge funds use a wider variety of investment techniques—including short positions, derivatives transactions, and leverage—in their effort to boost returns and manage risk.

Hedging

The practice of offsetting existing risk exposures by taking opposite positions in instruments or contracts with identical or similar risk—for example, in related derivatives contracts.

Hybrid instruments

A combination of two or more different financial instruments that generally have debt and equity characteristics.

Inflation-indexed bond

A bond that has its coupons and principal indexed to inflation. With an inflation-indexed bond, the real rate of return is known in advance, and the nominal return varies with the rate of inflation realized over the life of the bond. Hence, neither the purchaser nor the issuer faces a risk that an unanticipated increase or decrease in inflation will erode or boost the purchasing power of the bond’s payments.

Institutional investor

A bank, insurance company, pension fund, mutual fund, hedge fund, brokerage, or other financial group that takes investments from clients or invests on its own behalf.

Intangibles

An identifiable non-monetary asset without physical substance.

International Association of Insurance Supervisors

International standard setter for insurance supervision and regulation.

International Organization of Securities Commissions (IOSCO)

International standard setter for securities regulation.

Investment- and noninvestment grade

An entity or transaction is considered investment grade if its credit rating is BBB–or better (Baa3 on the Moody’s scale). Otherwise, it is considered noninvestment grade.

Investment banks

Non-deposit-taking financial institutions that, among other capital markets activities, act as intermediaries between securities issuers and investors, facilitate mergers and other corporate reorganizations, and act as brokers for institutional clients.

Investment funds

Financial institutions that pool investments and parcel them out to investors for fees.

Lender-of-last-resort facilities

An institution, usually a country’s central bank, that offers loans to banks or other eligible institutions that are experiencing financial difficulty. Lender-of-last-resort facilities aim to prevent widespread panic in the financial system.

Liquidity coverage ratio (LCR)

A liquidity standard introduced by Basel III. It is defined as the ratio of high-quality liquid assets to short-term liquidity needs under a specified acute stress scenario. Two types of liquid assets are included, both of which are supposed to have high credit quality and low market risk: Level 1 assets are meant to exhibit characteristics akin to the safest assets; those in Level 2 are subject to a haircut and a limit on their quantity in the overall liquidity requirement.

Liquidity risk

The risk that increases in assets cannot be funded or obligations met as they come due, without incurring unacceptable losses. Market liquidity risk is the risk that asset positions that are normally traded in reasonable size with little price impact can only be transacted at a substantial premium/discount, if at all. Funding liquidity risk is the risk that solvent counterparties have difficulty borrowing immediate means of payment to meet liabilities falling due.

Leverage

The proportion of debt to equity (also assets to equity or capital to assets in banking). Leverage can be built up by borrowing (on-balance-sheet leverage, commonly measured by debt-to-equity ratios) or by using off-balance-sheet transactions.

Logit model

A statistical binary response model in which the response probability follows a logistic distribution and is evaluated as a function of the explanatory variables.

Long-Term Refinancing Operations

Open market operations conducted by the European Central Bank to provide long-term liquidity to the financial system.

Market making

A trading activity by a bank or a broker-dealer firm that accepts the risk of holding a certain number of shares of a particular security in order to facilitate trading in that security. Each market maker competes for customer order flow by displaying buy and sell quotations for a guaranteed number of shares. Once an order is received, the market maker immediately sells from its own inventory or seeks an offsetting order.

Margin

The amount that the holder of a financial instrument has to deposit (with its broker or exchange) to cover some or all of the risk associated with that instrument.

Market liquidity

The degree to which an asset or security can be bought or sold in the market without affecting its price. Liquidity is characterized by a high level of trading activity. Assets that can be easily bought or sold are known as liquid assets.

Monetary financial institutions (MFIs)

Defined by the European Central Bank as central banks, resident credit institutions as defined in Community law, and other resident financial institutions whose business is to receive deposits and/or close substitutes for deposits from entities other than MFIs and, for their own account (at least in economic terms), to grant credits and/or make investments in securities.

Money market funds

Investment funds that invest in short-term debt securities. Money market funds are also classifed as monetary financial institutions. See also Monetary financial institutions (MFIs).

Money market mutual fund (MMMF)

An open-ended mutual fund that invests in short-term debt securities such as U.S. Treasury bills and commercial paper.

Mortgage-backed security (MBS)

A security, backed by pooled mortgages on real estate assets, that derives its cash flows from principal and interest payments on those mortgages. An MBS can be backed by residential mortgages (residential mortgage-backed securities, RMBSs) or mortgages on commercial properties (commercial mortgage-backed securities, CMBSs). A private-label MBS is typically a structured credit product. RMBSs that are issued by a government-sponsored enterprise are not structured.

Net stable funding ratio (NSFR)

The NSFR was introduced by Basel III to provide a sustainable maturity structure of assets and liabilities. It requires a minimum amount of stable sources of funding at a bank relative to the liquidity profiles of the assets as well as to the potential for contingent liquidity needs arising from off-balance-sheet commitments, over a one-year horizon. The NSFR aims to limit over-reliance on short-term wholesale funding during times of buoyant market liquidity and encourage better assessment of liquidity risk across all on- and off-balance-sheet items.

Nonbank financial institutions

A financial institution that does not have a full banking license or is not supervised by a national or international banking regulatory agency. These institutions facilitate financial services, such as investment, risk pooling, contractual savings, and trading and brokering, and can include money market mutual funds, investment banks, finance companies, insurance firms, pension funds, hedge funds, currency exchanges, and microfinance organizations.

Nonperforming loans (NPL)

Loans for which the contractual payments are delinquent, usually defined as being overdue for more than a certain number of days (e.g., more than 30 or 60 or 90 days).

Outright Monetary Transactions (OMTs)

A program of the ECB to purchase sovereign bonds in the secondary market, announced on September 6, 2012, aimed at safeguarding against monetary policy transmission throughout the euro area. Transactions will be based on the short end of the yield curve. A necessary condition for OMTs is strict and effective conditionality attached to an appropriate EFSF/ESM program. See also European Financial Stability Facility (EFSF) and European Stability Mechanism (ESM).

Open market operations

The primary means by which a central bank is able to control the short-term interest rate and the supply of base money, and thus to implement monetary policy. They include outright securities transactions, securities transactions with repurchase agreements, and collateralized lending.

Over-the-counter

In the case of financial securities, those that are traded directly between two parties rather than on a financial exchange.

Over-the-counter (OTC) derivative

A financial contract whose value derives from underlying security prices, interest rates, foreign exchange rates, commodity prices, or other market indices, and that is traded bilaterally rather than through an exchange.

Partial spin-off

The creation of an independent firm through the partial sale of an existing business of a parent firm; divestiture.

Primary dealer

A financial institution that is authorized to deal directly with the central bank in the buying and selling of government securities.

Price-to-book ratio (P/BV)

Used to compare a stock’s market value to its book value. It is calculated by dividing the current closing price of the stock by the recent quarter’s book value per share.

Private-label securitization

Securitization products not issued or backed by governments and their agencies.

Probit model

A statistical binary response model in which the response probability follows a normal distribution and is evaluated as a function of the explanatory variables.

Proprietary trading

Taking positions in the market using the firm’s own capital.

Quantitative easing (QE)

An expansion of a central bank’s balance sheet through purchases of government securities and other assets, funded through the creation of base money (cash and bank reserve balances). The second round of quantitative easing by the Federal Reserve to stimulate the U.S. economy following the recession that began in 2007/08 was initiated in the fourth quarter of 2010 and is referred to as Quantitative Easing 2 (QE2).

Real estate investment trusts (REITs)

Specially designated corporations that own and/or operate properties and benefit from special tax treatment that exempts them from corporate income taxes provided that they pay out 90 percent of their income to their shareholders.

Regulatory arbitrage

Reducing regulatory capital requirements by taking advantage of differences in regulatory treatment across countries or across types of financial institutions, as well as of differences between economic risk and risk as measured by regulatory guidelines.

Repo (repurchase) agreement

A sale of a security coupled with an agreement to repurchase the security at an agreed price at a future date. This transaction occurs between a cash borrower (or securities lender), typically a fixed-income securities broker-dealer, and the cash lender (or securities borrower), such as a money market mutual fund or a custodial bank. The securities lender receives cash in return and pledges the legal title of a security as collateral.

Resolution

Procedures and measures taken to solve the situation of an unviable institution. Bank resolution is a form of bankruptcy process managed by a government agency with the responsibility to manage an orderly liquidation and to avoid losses to insured retail depositors.

Risk premium

The extra expected return on an asset that investors demand in exchange for accepting its higher risk.

Risk reversals

Measure of the relative demand for upside/downside protection on an underlying asset, using out-of-the-money options pricing. It is estimated as the difference between the implied volatility on out-of-the-money call and put options and is also referred to as the volatility skew.

Risk-weighted assets

The total of all assets held by a bank weighted by credit, market, and operational risk weights according to formulae determined by the national regulator or supervisor. Most regulators/ supervisors adopt the Basel Committee on Banking Supervision (BCBS) guidelines in setting formulae for asset risk weights.

Scale economies

Cost advantages in a firm arising from expansion, including size.

Securities Markets Program

Interventions by the Eurosystem in public and private debt securities markets in the euro area to ensure depth and liquidity in those market segments that are dysfunctional.

Securitization

The creation of securities from a portfolio of existing assets or future receivables that are placed under the legal ownership or control of investors through a special intermediary created for this purpose—a “special purpose vehicle” (SPV) or “special purpose entity” (SPE).

Single Supervisory Mechanism (SSM)

A common banking supervision framework under the aegis of the European Central Bank for the euro area banks, as proposed by the European Commission in September 2012.

Solvency II

A Directive of the European Union (Solvency II Directive 2009/138/EC) that codifies and harmonizes insurance regulations in the European Economic Area. As part of its provisions, the directive determines the amount of capital that insurance companies must hold to reduce the risk of insolvency.

Swap

An agreement between counterparties to exchange periodic payments based on different reference financial instruments or indices on a predetermined notional amount. When the swap agreement is based on fixed versus floating interest rates, it is called an interest-rate swap. See also Swap spread.

Swap spread

The differential between the government bond yield and the fixed rate on an interest rate swap of the equivalent maturity. See also Swap.

Swaptions

Interest rate instruments that allow investors to take a view on future interest rate volatility, using options to trigger then underlying interest-rate swap agreements. A 10-year by 10-year swaption allows an investor to buy/sell a 10-year option on an underlying interest rate swaps contract with a 10-year term.

Tier 1 capital

Under Basel III, Tier 1 capital or going-concern capital comprises Common Equity Tier 1 capital and Additional Tier 1 capital (for further details, see http://www.bis.org/publ/bcbs189_dec2010.pdf). See also Common Equity Tier 1 capital and Additional Tier 1 capital.

Too important to fail (TITF)

Financial institutions considered to be so large, interconnected, or critical to the workings of the wider financial system that their disorderly failure would destabilize both the financial system and the wider economy. Hence, public funds would be deployed to prevent such a failure.

Tripartite (or tri-party) repo

A repo transaction in which a custodian bank or international clearing organization (the tri-party agent) acts as an intermediary between the two parties. The tri-party agent is responsible for the administration of the transaction, including collateral allocation, marking to market, and substitution of collateral.

Underwriting

The process that financial institutions use to assess the eligibility of a customer to receive their products.

Vienna Initiative

The European Bank Coordination “Vienna” Initiative (EBCI) was launched in January 2009 to provide a framework for coordinating the crisis management and crisis resolution that involved large cross-border banking groups systemically important in emerging Europe. The European Bank for Reconstruction and Development, the IMF, the European Commission, and other international financial institutions initiated a process aimed at addressing the collective action problem. In a series of meetings, the international financial institutions and policymakers from home and host countries met with commercial banks active in emerging Europe to discuss what measures might be needed to reaffirm their presence in the region in general, and more specifically in countries that were receiving balance of payments support from the international financial institutions.

VIX

Chicago Board Options Exchange Volatility Index that measures market expectations of financial volatility over the next 30 days. The VIX is constructed from S&P 500 option prices.

Volcker Rule

Section of the Dodd-Frank Act seeking to restrict banks from using depositor funding to conduct proprietary trading and other activities that could expose banks to excessive risk.

Wholesale funding

The funding of banks in private markets, used in addition to deposits from customers, to finance bank operations. Wholesale funding sources include, but are not limited to, debt issuance, short-term instruments such as certificates of deposit and commercial paper, repo transactions, and interbank borrowing.

Yield curve

The relationship between the interest rate (or yield) and the time to maturity for debt securities of equivalent credit risk. In this GFSR, the interest (term) spread between the 10-year Treasury bond and the 3-month Treasury bill.

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