GLOSSARY

List of Financial Terms in alphabetical order:

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Landesbank German regional state banks that carry the reserves for savings banks and provide clearing services. The banks offer low interest loans to local borrowers and are expanding their services to corporate customers.

Lapse Termination of an insurance policy due to non-payment of a premium.

Lapse Rate Describes the percentage of in-force policies that terminate due to non-payment of renewal payment during a policy year. The rate is determined by dividing the number of policies that lapse by the number of polices in force at the beginning of a policy year.

Law of Large Numbers A theory of probability used as the basis for spreading risk in the insurance industry. The larger the number of risks, the more closely the actual results will approximate the results anticipated by the mathematics of probability.

Layering Refers to a process in reinsurance where different layers or amounts are ceded to different reinsurers. Often different amounts of coverage carry different terms.

LC See Letter of Credit

L/C See Letter of Credit

Legal Lending Limit (LLL) Banking regulation used in most countries to limit the amount of exposure that a bank is allowed to have to any one obligor (borrower), either individually or on a consolidated basis in the case of a financial conglomerate or bank holding company. The limit is typically based on a percentage of the bank's capital. The most common percentage used by regulators globally is 25%.

Lender of Last Resort An institution, normally a central bank, that stands ready to lend to the commercial banking system when an overall shortage of funds occurs, or to an individual bank experiencing a liquidity squeeze.

Letter of Credit (L/C) The written undertaking, or obligation, of a bank made at the request of its customer (a buyer) to honor a seller's drafts or other demands for payment upon compliance with the conditions specified in the Letter of Credit. There are different forms of L/Cs with different terms to meet different purposes.

Level Premium Insurance Insurance premium that remains the same over the period that the premiums are paid. Premiums at the beginning of the policy are more than the cost of protection and less than the cost during the latter years. This excess creates a natural reserve.

Leverage Describes the amount of debt in relation to equity in a company. The more debt a company holds, the greater the financial leverage. In the investment arena, the term refers to the use of debt to increase returns, an example of which is buying securities on margin.

Leveraged Buyout Acquisition transaction in which borrowed funds in the form of issued debt are used to gain control of a company by purchasing its stock. The assets and cash flow of the target company are used to partially secure the debt issued to finance the acquisition. After the takeover, the acquired company issues bonds to help pay off the debt incurred in the buyout.

Liability A term that refers to the funds owed by a bank or a company. These include time and demand deposits, funds borrowed from the Federal Reserve Bank or other banks and other debt including short- and long-term debt.
Liability Management The process of managing bank liabilities (primarily deposits and borrowings) to support lending activities and grow other bank assets.

LIBOR See London Interbank Offered Rate
Life Assurance The term commonly used in Europe for life insurance. The most popular form of coverage is level term assurance in which an insured pays a specific amount for a set term and, in the event of death, the claim under the policy is paid as a lump sum to the assured.

LIFFE See London International Financial Futures Exchange.

Limit Order An order given to a broker that has restrictions on execution. Typically the customer will specify a price to purchase a security. The order is only executed if the market price equals or is better than that price. Limit orders also have periods of time that they are valid if they are not cancelled. If the order is not executed in a specified period of time, the limit order expires.

Limited-Payment Policy A form of whole life insurance where premiums are paid until a predetermined date or until death. At that time, the contract is paid in full and insurance coverage continues without additional payments being made.

Line of Credit A loan in which a bank makes funds available to the customer. The customer can borrow these funds (up to a pre-established maximum) at any time. Typically, customers only pay interest on the amount of loan they are using (i.e., the amount of the line they have “drawn down”).

Lines of Credit See Line of Credit.

Liquid Market A market where there are a large number of buyers and sellers interacting and sustaining a high level of trading activity.

Liquidity The ability of a financial services organization to meet its current financial obligations. Also refers to the ease with which financial instruments can be quickly converted into cash with minimal loss in value.

Liquidity Ratio Strict cash ratios set by the Federal Reserve Bank for banks in the U.S. and by regulatory authorities in most countries for their local banks. The ratio is designed to monitor a bank's cash (bank notes, coin) relative to the amounts owed (liabilities) to its customers.

Liquidity Risk Refers to the risk that a financial institution will not have sufficient funding available at any given time to conduct business and meet its obligations. Liquidity risk is primarily related to the effective management and diversification of funding sources. Liquidity risk can also be caused by having too much or unexpected liquidity (possibly due to prepayments of loans that were not expected) which can impair an institutions' ability to create profits in the short-term.

LLL See Legal Lending Limit

Lloyd's Of London One of the world's oldest and largest insurance markets organized to spread risk. Members are a group of different brokers and syndicates of Lloyd's which specialize in underwriting a particular risk.
Load Fee charged by some mutual funds to its investors to cover the broker's commissions.

Loan Arrears Principal amounts under the terms of a loan agreement that have not been paid to a bank by the borrower on the due date.

Loan Grading A type of credit scoring system used by banks to determine the quality of a loan portfolio. Most U.S. financial institutions use the National Banks Examiner Risk Classification System when assigning risk in order to meet the regulatory requirements for the loan quality report that must be filed quarterly with the bank supervisory agency.

Loan Portfolio The combined holdings of multiple types of loan products with varying yields and maturity dates.

Loan To Value Ratio (LTV) The relationship between the amount of the loan and the value of the underlying collateral. With home mortgages, the ratio is used to determine if default insurance is required with the loan.

LOC See Line of Credit.

London Interbank Offered Rate (LIBOR) The rate of interest at which banks in London are willing to lend to other banks. Most international variable-rate loans are tied to LIBOR. LIBOR changes often depending on supply and demand regarding cash and currency markets.

London International Financial Futures Exchange (LIFFE) London International Financial Futures Exchange where Eurodollar futures and futures-style options are traded.

Long duration contract An insurance contract that generally is not subject to unilateral changes in its provisions, such as noncancelable or guaranteed renewable contracts, and requires the performance of various functions and services for an extended period.

Long Position Used to describe trading situations in which the amount purchased is greater than the amount sold. Financial institutions can have long positions in any instrument that is traded, such as foreign exchange and specific equities. A long position also refers to having an excess of foreign currency assets over liabilities.

Long Term Credit Bank (LTCBs) A small group of banks in Japan that focuses on providing long-term loans to Japanese industry through funds raised by issuing long-term debt with a maturity of up to five years. These banks, which are not permitted to use retail deposits as a source of funds, can hold deposits of client firms and government bodies. There are three LTCBs: Industrial Bank of Japan, Long Term Credit Bank of Japan, and Nippon Credit Bank.

Losses Claims (in the insurance industry).

Loss Ratio The ratio that expresses the relationship of losses to premiums. There are two common loss ratios that include 1) Paid loss ratio

LTCB See Long Term Credit Bank

LTV See Loan To Value Ratio.

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