Every industry seems to have its own language, sometimes called industry “jargon”. It usually stems from members of the industry continually using the same terms over and over again and to save time they substitute abbreviations and acronyms. The banking industry is no different, and many terms have sprung up that may or may not be understood by outsiders. Since this is the banking industry, and most people have had dealings with banks, some of the terminology has become commonplace. Other expressions are usually used by banking professionals and most of the public are not aware of what they mean.
Just about everyone knows what APR (annual percentage rate), CD (Certificate of Deposit), ATM (Automated Teller Machine) and OD (Overdraft) are. But does the ordinary bank customer know what an OD privilege line is, or an ARM (Adjustable Rate Mortgage)? Here are some not so common terms and abbreviations used in the banking industry.
ACH– Automated Clearing House, through which everyone’s checks clear.
CARDS– Certificates for Amortizing Revolving Debt, securities backed by credit-card receivables.
CARS– Certificates of Automobile Receivables, securities backed by automobile receivables.
CHIPS– Clearing House Interbank Payment System, an international wire-system for high-value payments operated by a group of major banks.
CMO– Collateralized Mortgage Obligation, a type of mortgage security whereby cash flows from a set of mortgages are repackaged into bonds with different maturities.
CPN– Coupon, the interest rate on a debt security (the issuer promises to pay this interest rate to the holder until maturity; it is expressed as an annual percentage of face value).
EDP– Electronic Data Processing, how banks process all the information on accounts.
EFT– Electronic Funds Transfer, the method by which funds are wired between banks.
Fannie Mae- Nickname for the “Federal National Mortgage Association”, and the mortgage securities that are guaranteed by that agency.
Forex– Foreign Exchange, when a currency has to be exchanged for another currency.
FDIC– Federal Deposit Insurance Corporation, the government institution responsible for insuring bank deposits in the United States.
FED, the– The Federal Reserve Bank, the Central Bank of the United States.
Ginnie Mae– Nickname for the “Government National Mortgage Association” and the mortgage securities that are guaranteed by that agency.
L/C– Letter of Credit, a line extended for a short term to cover the shipment of goods. When the L/C is presented to the bank for payment, and it matches exactly the terms of the shipment and the goods involved, the bank will pay the shipper of the goods.
Libor– The London Interbank Offer Rate. This is frequently used as a base rate for many loans.
PN– Promissory Note, an integral part of a loan in which the debtor agrees to pay the lender.
Refi– Refinancing an existing debt. This can apply to ordinary line of credit loans, collateralized loans or mortgage loans.
Repo– The act of repossessing a vehicle on which the loan has been called due to non-payment.
SLA– Savings and Loan Association.
SWIFT– Society for Worldwide Interbank Financial Telecommunications, how banks correspond and settle with one another, globally.
T-Bill-Treasury Bill, the investment in U.S. Government security of less than 180 days.
YTM– Yield to Maturity, the final calculated interest rate on a discounted note.
If a bank has international as well as domestic business, this list would grow to include many more phrases and abbreviations, but just keeping track of American expressions is enough of a chore!