BANKING CONCEPTS
Prof. Krassimir Petrov
1. Introduction – understanding and explaining concepts in financial economics
2. Financial Markets – asset, liability, security, stock, bond, real estate, currencies, commodity, money,
interest rate, foreign exchange, exchange rates, intermediary, financial intermediary, money supply,
monetary theory, inflation, reserves, reserve requirements, minimum reserve requirements.
3. Macroeconomics – demand, supply, aggregate demand/supply, business cycle, recession,
depression, bust, boom, revival, price inflation, inflation rate, hyperinflation, monetary policy, central
bank, Fed, GDP, budget deficit, trade deficit, twin deficits, bank panic, financial panic, currency, panic,
bank run, currency run, stock market crash, collapse, skyrocket,
4. Financial Markets 2 – direct finance (vs. intermediary), liability, debt, IOU, debtor, creditor, borrower,
spender, maturity, short=term, long-term, equity, dividend, primary market, secondary market,
investment, investment bank, underwriting, underwriter, broker, dealer, liquid, liquidity, exchange, forex,
money market, capital market, discount, default, risk, return, collateral, hypothecation,
5. Financial Instruments – treasury, treasury bill, discount, negotiable, non-negotiable, certificate of
deposit, commercial paper, banker’s acceptance, repurchase agreement, mortgage, fed funds, fed
funds rate, Eurodollar, eurocents, stock, bond, converts, municipal bonds, consumer loan, (consumer)
durables, junk bonds, Eurobonds,
6. Financial Economics – transaction costs, economies of scale, asymmetric information, adverse
selection, moral hazard
7. Financial Institutions – depository institutions, deposit, loan, thrifts, savings and loan associations,
mutual savings banks, credit unions, commercial banks, life insurance (company), fire and casualty
insurance, pension fund, retirement fund, mutual fund, finance company, money market fund, checkable
deposit, savings deposits, portfolio
8. Money – wealth, income, medium of exchange, unit of account, store of value, commodity money, fiat
money, credit money, paper money, electronic money, e-money, payment, payment system, credit card,
debit card, electronic cash, electronic check, monetary aggregates, broad money, money supply, narrow
money, monetary base,
9.
Interest Rates & Modern Portfolio Theory
a.
Interest Rates -- interest, interest rate, interest payment, principal, simple loan, installment, installment
loan = fixed-payment loan, fixed payment = installment payment, fixed, coupon bond, coupon, coupon
rate, face value = par value, discount bond = zero-coupon bond; present value, future value, discounting,
compounding, yield to maturity, consol, perpetuity, continuity, current yield, basis point(s), return, rate of
return, gain, profit, capital gain, risk, interest rate risk, nominal interest rate, real interest rate, indexed
bonds;
b.
Portfolio Choice – asset, asset demand, wealth, expected return, risk, liquidity, elasticity, necessity,
luxury, risk aversion, diversification, systematic risk, systemic risk, individual risk, beta, risk premium,
liquidity premium, CAPM, APT;
c.
I.R. Behavior – ceteris paribus, demand, demand curve, supply, supply curve, equilibrium, market
clearing, excess demand, excess supply, surplus, shortage, loanable funds, stocks vs. flows, deficits,
government deficits, budget deficits, trade deficits, current account deficits, Fisher Effect, opportunity cost,
liquidity effect, liquidation, asset classes;
d.
I.R. Structure – risk structure of IR, term structure of IR, spread, IR spread, bid-ask spread, default,
default risk, default-free bonds, risk premium, investment-grade securities, rating agency, junk bonds,
liquidity premium, risk and liquidity premium, term to maturity, yield to maturity, yield curve, upward-sloping
(normal) yield curve, inverted yield curve;
10. Commercial Banking (Mishkin 10)– debt, secured debt, unsecured debt, restrictive covenant, sources of funds,
uses of funds, checkable deposits, non-transaction deposits (savings account & time deposit = certificate of
deposit), small-denomination time deposit, large-denomination time deposit = negotiable CD, discount loan = Fed
advance, bank holding company, insolvency, bank capital, loan loss reserves, reserves (at Fed), vault cash,
required reserves, excess reserves, cash items = cash items in process of collection + deposits at correspondent
banks, secondary reserves, commercial loans, industrial loans, real estate loans = mortgage loans, home-equity
loan, home-equity line, consumer loans, interbank loans, overnight loans, physical capital (buildings + equipment +
etc.), asset transformation, flows, inflows, outflow, deposit inflows, deposit outflows, management  liquidity
management, assets management, liability management, capital adequacy management, credit risk, interest-rate
risk, discount rate, to call in a loan, to sell a loan, return on assets, return on equity, capital shortfall, capital crunch,
credit crunch, credit squeeze, pushing on a string, risk re-pricing, credit risk  screening, monitoring, credit score;
loan commitment, collateral, compensating balance, credit rationing, gap analysis, maturity bucket, duration,
duration analysis, off-balance-sheet activity, credit line, a backup line of credit, overdraft + overdraft privileges,
value at risk, stress testing, financial engineering, deposit rate ceilings – interest rate caps.
11. Consumer Lending (additional material) – consumer finance; financial flexibility; debt pyramiding; financial
disclosure; Truth-in-Lending, APR< finance charge, credit investigation charge, points, credit bureau, redlining;
usury;
a.
Payment Services -- (a) NOW Account, (b) Super NOW (c) Money Market Deposit Accounts, (d) Share
Drafts, (e) Share Accounts, (f) Automatic Transfer Service = ATS;
b.
Savings Instruments – (a) passbook or regular savings account, (b) certificates of deposits, (c) marketindex certificates of deposit, (d) universal life-insurance plans, (e) pension plans; (f) combined brokerage
and cash-management services
c.
Credit Cards, Credit Card users – convenience users vs. installment users;
d.
Installment Credit – (a) automobile credit (b) revolving credit, (c) mobile homes, (d) other consumer
installment loans (furniture, medical, dental, vacations, consolidation) , non-installment credit (department
stores, utilities, professional services),
e.
Mortgages -- residential mortgage credit = home mortgage credit, home loan, apartment loan,
construction loan, “equity kickers”, “teaser” rates, second mortgage, junior mortgage, lease-purchase
option, mortgage banks = mortgage banking houses, conventional mortgage loan, charges (“points”),
residential mortgages vs. nonresidential mortgages, single-family home loan, mortgage insurance,
mortgage pools, mortgage servicing, securitized mortgages & pass-through mortgages, CMO =
collateralized
mortgage
obligation,
MBS
=
mortgage-backed
security,
home-equity loan vs. home-equity line; borrowing base = LTV, piggy-back loans,
f.
Types of Mortgages
i. Fixed-Rate,
ii. Variable-Rate,
iii. Adjustable
iv. Convertible-Rate
v. Graduated-Payment Mortgage,
vi. Canadian Rollover Mortgage
vii. Renegotiated-Rate Mortgage
viii. deferred-interest mortgage
ix. flexible-payment mortgage
x. shared-Appreciation Mortgage
xi. Reverse annuity Mortgage
xii. (l) jumbo (m) Neg-Am Mortgage
12. Consumer Lending consumer finance; financial flexibility; debt pyramiding; financial disclosure; Truth-in-Lending,
APR, finance charge, credit investigation charge, points, credit bureau, redlining; usury;
13. Payment Services
a.
b.
c.
d.
e.
f.
NOW Account
Super NOW
Money Market Deposit Accounts
Share Drafts
Share Accounts
Automatic Transfer Service = ATS;
14. Savings Instruments
a. passbook or regular savings account
b. certificates of deposits,
c. market-index certificates of deposit
d. universal life-insurance plans
e. pension plans
f. combined brokerage and cash-management services
15. Credit Cards
a. Convenience users
b. Installment users
16. Installment Credit
a. automobile credit
b. revolving credit
c. mobile homes
d. other consumer installment loans
i. furniture
ii. medical
iii. dental
iv. vacations
v. consolidation
17. Non-installment credit
a. department stores
b. utilities
c. professional services
18. Mortgages
residential mortgage credit = home mortgage credit, home loan, apartment loan, construction loan, “equity kickers”,
“teaser” rates, second mortgage, junior mortgage, lease-purchase option, mortgage banks = mortgage banking
houses, conventional mortgage loan, charges (“points”), residential mortgages vs. nonresidential mortgages, singlefamily home loan, mortgage insurance, mortgage pools, mortgage servicing, securitized mortgages & pass-through
mortgages,
CMO
=
collateralized
mortgage
obligation,
MBS
=
mortgage-backed
security,
home-equity loan vs. home-equity line; borrowing base = LTV, piggy-back loans,
19. Types of Mortgages
a. Fixed-Rate
b. Variable-Rate
c. Adjustable
d. Convertible-Rate
e. Graduated-Payment Mortgage
f. Canadian Rollover Mortgage
g. Renegotiated-Rate Mortgage
h. Deferred-interest mortgage
i. Flexible-payment mortgage
j. Shared-Appreciation Mortgage
k. Reverse annuity Mortgage
l. Jumbo
m. Neg-Am Mortgage