GLOSSARY

List of Financial Terms in alphabetical order:

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Safe Deposit Box A fee-based service provided by banks that provide an area where customers can store important documents, jewels and other valuables. Typically a box is provided to the customer that is located at the bank and the customer and bank hold two keys needed to open the safety deposit box.

Safe Harbor A rule by the Securities and Exchange Commission (Rule 10b-18) that allows companies to repurchase their own securities at certain points in time without being charged with securities price manipulation.

Salvage Property taken over by an insurance company to reduce the amount of a loss. The term also refers to the cost of saving property exposed to a peril.

SAP See Statutory Accounting Principles

Savings Account An interest bearing deposit account that carries no time limit or requirement. Often customers deposit funds in these accounts and do not make withdrawals for some time, thereby providing the bank with a stable source of funding.

Savings Banks Originally a term to describe banks that took in small deposits from local customers and then used those deposits to make secured loans, particularly home mortgage loans. Recent banking deregulation in many countries has expanded the activities and services that savings banks may provide.

SBLC See Stand-by-Letter of Credit

SEC See Securities and Exchange Commission.

Second Pillar Term used to describe funding for financing retirement benefits as articulated by the World Bank. Under this three pillared system, the first pillar consists of mandatory publicly financed solutions and the second pillar consists of pension schemes offered by employers.

Secondary Loan Market The market where financial institutions buy and sell loan and mortgage portfolios. The loans may be sold at full value or at a discount. The secondary market provides the lending originators with a supply of money for new loans, and allows the purchasers to obtain certain types of financial instruments without incurring the related marketing costs.

Secondary Market Market in which securities and other financial instruments, such as CDs, are traded following the date of their original issue.

Secured See Secured Loan.

Secured Loan Loan that is backed by property or some other form of tangible collateral. If the borrower defaults on the loan conditions, the lender may take legal action to reclaim and sell the collateral.

Secured Loans See Secured Loan.

Securities Equity and debt instruments, such as bonds.

Securities and Exchange Commission (SEC) The U.S. government agency charged by Congress to regulate the securities market and protect investors. The agency regulates reporting practices associated with the trading of securities of publicly owned companies. Its goal is to provide for full public disclosure and protect investors against fraud and manipulative securities practices. Similar agencies in other countries include the Securities Council in Germany and the Financial Services Authority in the U.K.

Securities Lending Lending by a financial institution of its securities to another financial institution for a predetermined period. The borrower often uses the securities to cover a short position. See also Borrowed Securities.
Securities Registration The process of obtaining approval from a regulatory entity to sell specific securities to the public. In the United States, this process was initiated by the Securities Act of 1933, which requires issuers to file a registration statement with the Securities and Exchange Commission.

Securitization The process of creating a financial instrument (a security) by pooling other financial assets (e.g., mortgages, bank loans), using these pooled assets as backing for the newly issued securities, and then marketing those securities to investors. Mortgage backed securities are an example of securitization.

Securitization of Risk And Contingent Capital A type of alternative risk transfer in insurance that allows investors to protect themselves against the frequency of loss associated with natural disasters.

Self-Insurance A method of risk financing in which a firm assumes all or a part of its own potential losses.

Servicing The activities and services (collection of principal and interest payments, property taxes and sometimes management of collateral) associated with loans sold on the secondary market or with loans that have been securitized.

Settlement In securities trading, the term refers to the act of delivering securities in exchange for payment. In banking, settlement refers to the process by which the availability of funds is confirmed through the payment systems provided by various clearinghouses.

Settlement Date In the securities industry, the term refers to the date on which the actual transfer of cash and securities involved in a trade actually takes place. In banking, it refers to the date on which funds transferred through a central bank payments system, such as FedWire, or a private network are credited (deposited) to a customer's account and available for use.

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

Short Selling The process of selling a security or commodity that the investor does not own at a specific price for future delivery. This strategy is used in order to profit from a decline in the price, allowing the investor to buy the asset for delivery to the buyer at a lower price than the price previously agreed with the buyer.

Short-tail Lines of Insurance Types of insurance with large claim volumes that occur quickly and are terminated quickly. (e.g., auto and medical insurance).

Single Premium A type of life insurance where one lump sum payment is made and coverage is provided for the duration of the policy with no additional payments required.

Single Premium Deferred Annuity (SPDA) A deferred annuity where only one payment is required. Because it is a deferred annuity, the investment grows tax-free during the accumulation period. Withdrawals and conversion options are available under certain specified conditions.

Single Premium Immediate Annuity (SPIA) An immediate annuity where only one payment is required. Because it is an immediate annuity, an income stream of payments begins soon after the contract is issued.

Society For Worldwide Interbank Financial Telecommunications (SWIFT) An organization that provides electronic payment messages on a global basis. This international body sets protocols and standards for international payment messages, such as electronic money transfers and securities transactions.

SPDA See Single Premium Deferred Annuity.

SPIA See Single Premium Immediate Annuity.

Special Class Type of insurance policies that carry higher premiums due to extra risk.

Specialist A securities firm that holds a seat on a securities exchange. Specialists maintain a fair and orderly market in one or more securities where they have an exclusive franchise.

Spot Markets In commodities trading, the term refers to a market where goods are sold for cash and delivered immediately. Generally, spot foreign exchange is traded for settlement two business days from the trade date. With futures contracts, the spot month is also the current calendar month.

Spread In banking, spread refers to the difference between borrowing and lending rates and the margin between a bank's cost of funds and the interest rate charged for loans. The term has different meanings when applied to different types of securities trading. In stocks and bonds, the term refers to the difference between the bid and the offer (ask) price. In options trading it refers to a position consisting of one long call and one call option or one long put and one short put option. In either case, they are referred to as one leg of the spread. The term can also refer to the difference between the buying and selling rates of a foreign currency or a bond. In banking, spread refers to the difference between borrowing and lending rates and the margin between a bank's cost of funds and the interest rate charged for loans.

Stand-by Letter of Credit (SBLC) Type of performance Letter of Credit that ensures the repayment of a financial obligation. A standby letter of credit is a bank promise to pay the third party in the event of some defined failure by the bank's customer, usually, but not always, a failure to pay. SBLCs have been an instrument used primarily by U.S. banks, which are prohibited by law from issuing guarantees on behalf of third parties.

State Bank A bank in the United States that receives its charter from a state based regulatory agency as opposed to a national bank chartered on the Federal level. In other countries, a state bank would be a bank that is owned by the government.

Statement of Condition Report that summarizes the status of assets, liabilities, and equity (i.e., the balance sheet) of a company for a specific period of time. Banks file sworn statements of financial condition (referred to as a call report in the United States) every quarter as per banking regulations. Bank supervision in the majority of countries consists of requiring and monitoring bank statements of condition and visits by bank examiners.

Statutory Accounting Principles (SAP) Special financial reporting requirements for the insurance industry as required by various state insurance departments in the United States. It differs from the Generally Accepted Accounting Principles (GAAP) used by other U.S. industries in the reporting of their financial information.

Stock Company A company that has its capital divided into shares and is publicly owned by shareholders.

Stock Symbol Unique symbol composed of letters that is assigned to each quoted security. The symbol provides information regarding the security and indicates the exchange where it is traded.

Stockholder Individuals or corporations that hold an ownership interest (share) in a corporation.

Stop Loss A form of reinsurance that limits insurers total loss exposure to a predetermined amount and period. This type of reinsurance is offered on policies, classes of policies, or an entire book of business.

STP See Straight Through Processing

Straight Through Processing (STP) Refers to a movement away from sequential processing to fully automated processing of securities transactions from pre-trade information to settlement. An anticipated one-day settlement cycle for securities trading known as T+1 (one-day settlement), plus the effects of globalization and an increased need for efficiency are all driving the push for straight through processing.
Strike Price Price at which an asset upon which an option is written can be purchased (if a call option) or sold (if a put option).

Sub-custodian A custodian in a foreign market who provides safekeeping and settlement services for a global custodian.

Subordinated Debt A debt that takes a secondary priority to senior debt (sometimes called junior debt). In the event of bankruptcy, subordinated debtholders are not paid until all senior debt is paid in full.

Subrogation The right of an insurer to pursue any course of action for collecting damages from a third party that is liable for costs relating to an insured event that has been paid by the insurer.

Super Regional Bank A large bank (ranking in the top 100 banks in the U.S.) that operates a full service bank in several states outside its home state. This type of bank is found in all major geographic regions of the U.S.

Supermarket Banking A type of alternate banking delivery system where banks have "branches" and/or automated teller machines located in supermarkets. This term may also refer to "one-stop shopping" whereby a financial institution provides products and services to meet all the financial needs of individuals. In the U.K., the term refers to banking services that are actually offered by the supermarkets themselves.

Surcharge Fees charged to automated teller machine (ATM) users by the bank that owns the ATM.

Surety Bonds A bond that backs the performance of a person or company that is bonded, such as a contractor or construction company. The surety company provides for monetary compensation if the person or company fails to perform the specified services within the stated period.

Surplus The amount by which an insurance company's assets exceed its liabilities and capital.

Swap A contract to exchange a series of periodic payments between two parties. Swaps are available in all active financial markets. There are many types of swaps (e.g., interest rate, currency, forwards, commodities, and assets). Official definitions of swaps and swap related terminology are outlined in the International Swap and Derivatives Association publication, Definitions.

Swaption Option to enter into a fixed for floating rate swap at a predetermined fixed rate.

Sweep Account Cash management account into which funds from other accounts are transferred at the end of each business day. This vehicle is a means of aggregating balances from a multitude of different accounts so that the funds can be invested overnight in larger amounts to earn a higher yield than would be available on the investment of individual account balances.

SWIFT SWIFT is the acronym for the Society for Worldwide Interbank Financial Telecommunications. More commonly, SWIFT is the name given to the payment messages network operated by SWIFT. This network is used by banks to transmit high value payment messages internationally and operates through standardized message formats in a highly secure environment. Because of the standardization, banks can process these transactions on a totally automated basis, which reduces processing costs and virtually eliminates message transmission errors. The SWIFT system also generates detailed balance and transaction information on a daily basis to facilitate the reconciliation of customer accounts. SWIFT is only a communications network, not a payments network. Payment messages sent over SWIFT still need to be settled through one of the other systems. However, SWIFT messages automatically initiate payments in many financial institutions.

Syndicate Group of banks that acts jointly on a temporary basis to lend money in a large bank credit or to underwrite a new issue of bonds. Syndicates also exist in the insurance industry and act to share the risk of specific types of insurance. Lloyds of London is the largest and oldest insurance syndicate.

Syndicated loan Jumbo loan to a company, country or government agency in which many banks participate because the total amount of the loan is too large for any one bank to absorb on the basis of risk exposure to the borrower.

Systemic risk Any risk that affects a large number of banks within a market or on a global basis. This is the risk that a failure of one bank caused by specific circumstances will affect an entire banking system.

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