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Federal Reserve Board of Governors

Glossary

Glossary  
Accrued interest Interest that has been earned, but not yet collected, on interest-bearing assets.
Agency mortgage-backed securities (agency MBS) Mortgage-backed securities issued or guaranteed by federal agencies and government sponsored enterprises.
Agency securities Securities, such as debt and mortgage-backed securities, issued or guaranteed by U.S. federal agencies and government sponsored enterprises.
Asset-backed commercial paper Commercial paper that is collateralized by a discrete pool of assets (such as loans, leases, or receivables) and that makes payments that are based primarily on the performance of those assets.
Asset-backed security A security that is collateralized by a discrete pool of assets (such as loans, leases, or receivables) and that makes payments that are based primarily on the performance of those assets.
Basis point One one-hundredth of a percentage point.
Clearing banks A commercial bank that facilitates payment and settlement of financial transactions, such as check clearing or matching trades between the sellers and buyers of securities and other financial instruments and contracts.
Collateralized debt obligation (CDO) A type of asset-backed security that is collateralized by a discrete portfolio of fixed income assets and that makes payments that are based on the performance of those assets.
Commercial mortgage-backed security A security that is collateralized by a discrete pool of commercial mortgage loans and that makes payments that are based primarily on the performance of those loans.
Commercial paper Short-term negotiable promissory note maturing in 270 days or less and issued by an industrial or commercial firm, or a financial company.
Coupon swap An agency MBS transaction conducted at market prices, involving the sale of one agency MBS with a particular coupon with the simultaneous agreement to purchase a different agency MBS with a different coupon.
Credit default swap A contract that provides protection against the risk of default by borrowers. The buyer of the credit default swap (CDS) makes periodic payments to the seller, and in return the buyer will receive a payoff if the borrower defaults, similar to an insurance contract.
CUSIP A unique alphanumeric identifier for securities, used for trading and settlement, developed by the Committee on Uniform Security Identification Procedures.
Depository institution A financial institution that is legally permitted to accept deposits from individuals. Depository institutions include savings banks, commercial banks, savings and loan associations, and credit unions.
Discount window A generic term used to refer to Federal Reserve's lending programs, often used to denote in particular the lending programs under which credit may be provided to eligible depository institutions. Regular lending programs include the primary, secondary, and seasonal lending programs. During the recent financial crisis, discount window credit was also extended to depository institutions under the Term Auction Facility (TAF). All discount window borrowing is fully secured by collateral.
Dollar roll An agency MBS transaction conducted at market prices that generally involves the purchase (or sale) of agency MBS for delivery in the current month, with the simultaneous agreement to resell (or repurchase) substantially similar (although not necessarily the same) securities on a specified future date.
Equity interest An ownership interest in a business entity.
Federal funds rate The interest rate at which depository institutions lend their excess Federal Reserve deposits to each other.
Fixed-income securities A security that yields a fixed dollar amount.
FOMC The Federal Open Market Committee (FOMC) of the Federal Reserve is responsible for open market operations, the principal tool through which U.S. monetary policy is implemented to influence the availability and cost of money and credit to help promote national economic goals. The FOMC is made up of the seven members of the Board of Governors of the Federal Reserve System, the president of the Federal Reserve Bank of New York, and four of the remaining eleven Reserve Bank presidents, who serve on a rotating basis.
Investment grade A security that is rated one of the four highest rating categories by a nationally registered statistical rating organization (NRSRO). The rating represents the NRSRO's assessment of the security's likelihood to pay interest and repay principal.
Libor Libor (London Interbank Offered Rate) is a reference interest rate published by the British Bankers' Association (BBA). The BBA surveys a panel of major banks daily and asks each bank to provide the interest rate at which it believes it could borrow funds unsecured in a particular currency and for a particular maturity in the wholesale money market in London. The published rate is a trimmed average of the rates obtained in the survey.
Limited Liability Company (LLC) A legal form of company that provides limited liability from its actions for its owners.
Money markets The portion of financial markets involving short-term borrowing and lending with original maturities of one year or less. Many instruments are traded in money markets, including Treasury bills, commercial paper, federal funds, certificates of deposit, and short-lived mortgage- and asset-backed securities.
Money-market mutual fund A company that pools money from many investors and invests the money in certain high-quality, short-term securities. The net asset value is maintained close to $1.00 per share.
Mortgage-backed securities (MBS) A security that is collateralized by a discrete pool of mortgage loans and that makes payments that are based primarily on the performance of those loans.
Nonrecourse loan A loan that is secured with a pledge of collateral, but for which the borrower is not personally liable; in the event of default, the lender's recovery is limited to the collateral. In the case of Federal Reserve emergency lending facilities that extended nonrecourse loans, a loan loses its nonrecourse status if a borrower breaches the loan agreement, for example, by misrepresenting its eligibility for a loan.
Open market operations (OMO) Purchases and sales of securities, typically U.S. Treasury and federal agency securities, in the open market, by the Open Market Trading Desk at the Federal Reserve Bank of New York as directed by the Federal Open Market Committee, as a tool for implementing monetary policy.
Preferred stock An ownership interest in a business entity in which the holder has a claim senior to claims of common stockholders on earnings and liquidation. Preferred stock typically pays a dividend and does not carry voting rights.
Primary credit One of the Federal Reserve's discount window lending programs for depository institutions. Primary credit is extended by Federal Reserve Banks to depository institutions in generally sound financial condition. Credit is typically provided on a very short-term basis, as a backup source of funding, at a rate of interest that is above the level of short-term market interest rates.
Primary dealers Banks and securities broker-dealers that serve as counterparties for the Federal Reserve Bank of New York in its conduct of open market operations. A current list of primary dealers can be found here Leaving the Board.
Reserve requirements The amount of reserves that a depository institution must hold against specified deposit liabilities.
Secured lending Lending in which the borrower pledges collateral to the lender to secure repayment of the loan.
Securities lending/borrowing The temporary transfer of securities from one party to another for a specified fee and term, in exchange for collateral in the form of cash or other securities.
Securitization The pooling of assets into securities backed by those assets.
Senior loan Debt on which repayment is made first (before subordinated debt) in the event of the borrower's default.
Subordinated loan Debt on which repayment has lower priority (after senior debt) in the event of the borrower's default.
Settlement When payment is made for a trade. In banking, the process of recording the debit and credit positions of two parties in a transfer of funds. Also, the delivery of securities by a seller and the payment by the buyer.
System Open Market Account (SOMA) The Federal Reserve's portfolio of U.S. Treasury and agency securities.
Term funding Loans for terms longer than overnight.
Triparty repurchase agreement A repurchase transaction is a sale of securities coupled with an agreement to repurchase the securities at a specified price on a later date. In a triparty repurchase agreement, an agent facilitates the transaction by providing operational services such as custody of securities, settlement of cash and securities, valuation of collateral, and optimization tools to allocate collateral efficiently.
Warrant A security providing the right to purchase securities from the issuer at a set price within a set time period.
 
Last update: December 13, 2012