Glossary Of Banking Terms And Definitions

Below is a comprehensive glossary of banking terms commonly used by bankers, loan officers, financial advisors, compliance professionals, tellers, branch managers, commercial bankers, and operations teams.

We also provide terms and definitions for:

GENERAL BANKING TERMS AND DEFINITIONS

A

ACH (Automated Clearing House)

ACH is an electronic network used to process direct deposits, bill payments, and other electronic fund transfers.

Account Opening

The process of establishing a new customer account.

Account Maintenance

Updating account information and servicing existing accounts.

Administrative Enforcement Action

A formal regulatory action requiring a financial institution to correct violations or unsafe practices.

Affiliate Transaction

A transaction between a bank and a related company subject to regulatory restrictions.

Amortization

The process of gradually paying off a loan through scheduled principal and interest payments.

Annual Percentage Rate (APR)

The yearly cost of borrowing money, including interest and certain fees.

Annual Percentage Yield (APY)

The annual rate of return earned on a deposit account, including the effects of compounding.

Anti-Money Laundering (AML)

Laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income.

Asset

Anything of value owned by an individual or organization.

Assessment Rate

The fee regulators charge financial institutions to fund supervision and deposit insurance.

Asset-Liability Management (ALM)

Managing assets and liabilities to balance risk, liquidity, and profitability.

Audit Trail

A documented record that allows transactions and activities to be traced for review and compliance purposes.

B

Balance Transfer

Moving debt from one credit account to another.

Bank Draft

A payment instrument issued by a bank and guaranteed by the bank.

Bank Holding Company (BHC)

A company that owns or controls one or more banks and is subject to regulatory oversight.

Bank Reconciliation

Comparing internal financial records with bank statements to identify and resolve differences.

Bank Secrecy Act (BSA)

U.S. law requiring financial institutions to assist in preventing money laundering and other financial crimes.

Bank Statement

A record of account activity over a specified period.

Beneficiary

The person or entity designated to receive funds or benefits.

Beneficial Owner

An individual who ultimately owns or controls a legal entity or account.

Beneficial Ownership Information (BOI)

Information identifying the individuals who own or control a legal entity, collected to support compliance requirements.

Bill Pay

An electronic service for paying bills directly from a bank account.

Borrower

The individual or entity applying for a loan and agreeing to repay the borrowed funds.

Brokered Deposit

A deposit obtained through a third-party broker, subject to specific regulatory rules.

Business Banking

Banking services tailored to businesses and organizations.

Business Line of Credit

A revolving credit facility for business expenses.

C

Call Report

A periodic financial report submitted by banks to their primary federal regulator.

Capital Adequacy

A measure of a bank's financial strength based on its capital relative to its risk exposure.

Capital Conservation Buffer

Additional capital that banks maintain above minimum requirements to absorb losses.

Capital Ratio

A measure comparing a bank's capital to its assets or risk-weighted assets.

Cash Management

Services that help businesses manage collections, disbursements, and liquidity.

Cashier's Check

A check drawn on the bank's own funds and guaranteed by the issuing bank.

Certificate of Deposit (CD)

A deposit account with a fixed term and interest rate.

Chargeback

The reversal of a payment transaction, often due to disputes or fraud.

Check Clearing

The process of transferring funds between financial institutions after a check is deposited.

Civil Money Penalty (CMP)

A monetary fine imposed by regulators for violations of banking laws or regulations.

Co-Borrower

A person who applies jointly for a loan and shares responsibility for repayment.

Collateral

Property pledged to secure repayment of a loan.

Commercial Mortgage

A loan secured by commercial real estate.

Commercial Loan

A loan made to a business for operational or capital needs.

Community Reinvestment Act (CRA)

U.S. law encouraging banks to help meet the credit needs of the communities they serve, including low- and moderate-income neighborhoods.

Compliance Monitoring

Ongoing review to ensure adherence to banking laws, regulations, and internal policies.

Compliance Management System (CMS)

A framework of policies, procedures, training, monitoring, and oversight designed to ensure regulatory compliance.

Compound Interest

Interest calculated on both the principal and previously earned interest.

Consumer Loan

A loan made to an individual for personal, family, or household purposes.

Consumer Complaint

A complaint filed by a customer regarding a financial institution's products, services, or practices.

Consumer Compliance Examination

A regulatory review assessing compliance with consumer protection laws.

Credit Limit

The maximum amount available to borrow on a credit account.

Credit Report

A record of an individual's credit history.

Credit Score

A numerical assessment of creditworthiness based on credit history.

Currency Transaction Report (CTR)

A report filed for certain cash transactions that meet federal reporting thresholds.

Customer Due Diligence (CDD)

Risk-based procedures for identifying customers and understanding the nature of customer relationships.

D

Debit Card

A payment card linked directly to a deposit account.

Debt-to-Income Ratio (DTI)

A comparison of monthly debt payments to gross monthly income.

Deposit Account

An account used to hold money at a financial institution.

Deposit Insurance

Protection for eligible deposits if an insured financial institution fails, subject to applicable coverage limits.

Direct Deposit

Electronic transfer of funds directly into a bank account.

Dormant Account

An account with no customer-initiated activity for a specified period.

Due Diligence

The process of gathering and evaluating information to assess risk and ensure regulatory compliance.

E

Electronic Funds Transfer (EFT)

Electronic movement of money between accounts.

Enforcement Action

Regulatory measures taken to address violations or unsafe banking practices.

Enterprise Risk Management (ERM)

A coordinated approach to identifying, assessing, and managing organizational risks.

Escrow Account

An account that holds funds on behalf of parties until specific conditions are met.

Equipment Financing

A loan or lease used to acquire business equipment.

Excess Withdrawal Fee

A fee that may apply when withdrawals exceed account limits, where permitted.

F

Fair Lending

The requirement that financial institutions provide equal access to credit without unlawful discrimination.

Fair Credit Reporting Act (FCRA)

U.S. law governing the collection, use, and sharing of consumer credit information.

Fair Debt Collection Practices Act (FDCPA)

U.S. law regulating the practices of third-party debt collectors.

FDIC Insurance

Insurance that protects eligible deposits at participating U.S. banks up to applicable limits.

Federal Deposit Insurance

Government-backed insurance for eligible deposits at insured institutions.

Fiduciary Duty

A legal obligation to act in the best interests of another party when managing assets or responsibilities.

Fixed Interest Rate

An interest rate that remains unchanged during the loan or deposit term.

Floating Interest Rate

An interest rate that changes based on a benchmark or index.

Fraud Detection

Monitoring systems and activities to identify suspicious or unauthorized transactions.

Funds Availability

The time required before deposited funds become available for withdrawal.

G

Governance

The framework through which an organization's board and management direct and oversee operations, risk, and compliance.

Grace Period

A period during which payment can be made without incurring certain penalties or interest.

H

Higher-Risk Customer

A customer requiring enhanced monitoring due to increased regulatory or financial crime risk.

Home Equity

The difference between a home's market value and the outstanding mortgage balance.

Home Equity Line of Credit (HELOC)

A revolving line of credit secured by home equity.

I

Identity Verification

The process of confirming a customer's identity.

Independent Review

An objective assessment of a compliance or risk management program.

Internal Controls

Policies and procedures designed to safeguard assets, ensure accurate reporting, and promote regulatory compliance.

Interest

The cost of borrowing money or the earnings on deposited funds.

Interest Rate

The percentage charged on a loan or paid on deposits.

International Wire Transfer

Electronic transfer of funds between financial institutions in different countries.

Invoice Financing

Financing based on a business's outstanding invoices.

J

Joint Account

A bank account owned by two or more individuals.

K

Know Your Customer (KYC)

Customer identification and verification procedures designed to comply with anti-money laundering regulations.

L

Late Fee

A charge assessed for failing to make a payment by its due date.

Letter of Credit

A bank's commitment to pay a seller if specified conditions are met.

Lien

A legal claim against property used as security for a debt.

Line of Credit

A revolving credit arrangement allowing borrowing up to an approved limit.

Liquidity

The ability to access cash quickly or convert assets into cash.

Liquidity Coverage Ratio (LCR)

A regulatory standard requiring certain banks to maintain sufficient high-quality liquid assets to withstand short-term stress.

Loan Application

A formal request by a borrower to obtain financing. It includes information about income, assets, debts, employment, and the requested loan amount.

Loan Officer

A professional who works with borrowers to evaluate loan options, collect initial information, and submit loan applications.

Loan Processor

The person responsible for organizing the loan file, verifying documentation, and preparing the application for underwriting review.

Loan Origination

The process of applying for and approving a loan.

Loan Review

An independent evaluation of a bank's loan portfolio for credit quality and policy compliance.

Loan Processing

Loan processing is the process of collecting, reviewing, verifying, and organizing a borrower's financial information to determine whether a loan application meets lender requirements. In mortgage lending, the loan processor acts as the coordinator between the borrower, loan officer, underwriter, appraiser, title company, and other parties to prepare the loan file for approval and closing.

Loan Underwriter

A loan underwriter is a financial professional who evaluates a borrower's loan application to determine the level of risk involved in lending money. The underwriter reviews the borrower's income, credit history, assets, debts, employment, and (for mortgages) the property details to decide whether the loan meets the lenderâ€™s approval guidelines.

Loan Servicing

Managing a loan after it has been funded, including payment collection and account maintenance.

Loan-to-Value Ratio (LTV)

The loan amount divided by the appraised value of the collateral.

M

Maturity Date

The date on which a loan or deposit becomes due.

Merchant Account

An account that allows businesses to accept credit and debit card payments.

Merchant Services

Banking services that enable businesses to accept electronic payments.

Minimum Balance

The required account balance to avoid fees or maintain benefits.

Mobile Banking

Banking services accessed through a mobile application.

Model Risk Management

Governance and controls for the development, validation, and use of financial models.

Money Laundering

The process of concealing the origin of illegally obtained funds.

N

NSF (Non-Sufficient Funds)

A situation where an account lacks enough funds to cover a transaction.

O

Office of Foreign Assets Control (OFAC) Screening

Checking customers and transactions against sanctions lists.

Online Banking

Banking services accessed through a secure website or mobile app.

Operational Risk

The risk of loss resulting from inadequate or failed internal processes, people, systems, or external events.

Overdraft

A transaction that exceeds the available account balance.

Overdraft Protection

A service that helps cover overdrafts using linked funds or credit, subject to applicable terms.

P

Payment Due Date

The date by which a payment must be received.

Personal Loan

An unsecured or secured loan for personal use.

Principal

The original amount borrowed or deposited.

Prime Rate

A benchmark interest rate that banks often use as a basis for pricing certain loans.

Prompt Corrective Action (PCA)

A regulatory framework requiring corrective measures when a bank's capital falls below specified thresholds.

R

Regulatory Capital

Capital recognized by regulators for determining compliance with capital requirements.

Regulatory Examination

A formal review conducted by banking regulators to assess safety, soundness, and compliance.

Refinancing

Replacing an existing loan with a new loan, often with different terms.

Remote Deposit Capture (RDC)

Depositing checks electronically by scanning or photographing them.

Risk Appetite

The amount and type of risk an organization is willing to accept in pursuit of its objectives.

Risk Assessment

The process of identifying, analyzing, and prioritizing risks.

Risk-Based Approach

A compliance strategy that allocates resources according to the level of identified risk.

Risk-Weighted Assets (RWA)

Assets adjusted according to their relative risk for calculating regulatory capital ratios.

Routing Number

A nine-digit number identifying a financial institution for payment processing.

S

Safety and Soundness

Regulatory standards promoting the financial stability and prudent operation of banks.

Safe Deposit Box

A secure storage compartment rented at a bank.

Sanctions Screening

Reviewing customers and transactions against sanctions lists.

Savings Account

A deposit account designed for saving money while earning interest.

Secured Loan

A loan backed by collateral.

Signature Card

A document containing authorized account holder signatures.

Source of Funds

Documentation explaining where a customer's money originated.

Source of Wealth

Information describing how a customer accumulated overall wealth.

Standing Order

A recurring instruction to make scheduled payments.

Stress Testing

Simulating adverse financial conditions to evaluate a bank's resilience.

Stop Payment

A request to prevent payment of a specific check or transaction.

Suspicious Activity Monitoring

Ongoing review of transactions to identify potentially suspicious behavior.

Suspicious Activity Report (SAR)

A report filed when suspicious activity meets applicable reporting requirements.

SWIFT Code

An international identifier used to route cross-border financial messages and payments.

T

Time Deposit

A deposit held for a fixed period before withdrawal without penalty.

Transaction History

A record of deposits, withdrawals, transfers, and other account activity.

Transaction Monitoring

Automated or manual review of financial transactions to identify unusual or suspicious activity.

Treasury Management

Banking services that help businesses manage cash flow, payments, and liquidity.

Trust Account

An account managed by one party on behalf of another.

Truth in Lending Act (TILA)

U.S. law requiring standardized disclosure of credit terms and borrowing costs.

U

Unfair, Deceptive, or Abusive Acts or Practices (UDAAP)

Standards prohibiting certain harmful practices in consumer financial products and services.

Unsecured Loan

A loan that does not require collateral.

Underwriting

The evaluation process used to determine whether to approve a loan and under what terms.

V

Variable Interest Rate

An interest rate that may increase or decrease over time.

W

Watch List

A list of customers, entities, or transactions requiring enhanced monitoring.

Transfer

An electronic transfer of funds between financial institutions.

Withdrawal Limit

A restriction on the amount or number of withdrawals that may be made from an account, depending on the account type or institution's policies.

Working Capital Loan

A loan used to finance a business's day-to-day operations.