S

Banker's Glossary

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

S corporation
Legal entity that is a special kind of Corporation. An S corporation offers shareholders the same limitations on personal liability that are available to corporate stockholders. At the same time, S corporations are taxed similarly to partnerships, that is, the income or loss incurred by the S corporation is allocated to the stockholders for tax purposes. S corporations are subject to limits on stockholders and may not be part of affiliated corporate groups.

Safekeeping
An arrangement under which a third party holds securities or other valuables under safe, controlled conditions. A safekeeping arrangement is evidenced by a safekeeping receipt.

Sallie Mae
See Student Loan Marketing Association.

SAR
See Suspicious Activity Report.

Satisfaction
See discharge.

Scenario
An outline of a hypothetical situation or chain of events. For example, a future recession.

Scenario analysis
(1) In investment analysis, the process of examining the anticipated performance of an investment under a variety of alternative potential interest rate environments.

(2) In bank asset/liability management, the process of modeling the anticipated effects of interest rate changes on the net income or capital of a financial institution. Scenario analysis incorporates assumptions for changes in the behavior of the institution's managers and its customers that are anticipated to be associated with the modeled changes in interest rates.

Screw clause (for convertible bonds)
An informal market term for a contractual clause or provision in the indenture agreement for a convertible bond. A screw clause provides that, upon conversion, the convertible bondholder may not receive accrued interest on the bond. Screw clauses may work in different ways. For example, the first call date may coincide with an interest payment date and the conversion rights may expire just before the interest payment date. In that example, an investor cannot take advantage of the bond’s conversion feature without failing to hold the bond long enough to receive the semiannual interest payment. Another example is a mandatory convertible bond that requires conversion before the interest pay date.

Seasoned issue or seasoned security
A mortgage-backed security with underlying mortgages that are seasoned loans. Sometimes described as vintage securities especially in the case of CMOs.

Seasoned loans
Loans for which a year or more has passed since periodic payments began. GNMA requires that mortgages within a given pool be originated within two years of the issue date. FNMA and FHLMC pools may contain older mortgages called seasoned loans.

SEC
See Securities and Exchange Commission.

SEC Rule 144
A rule issued by the SEC that governs stock issued under special circumstances. See control stock, dribble rule and restricted stock.

SEC yield
A measure of return for investments in mutual bond funds. The SEC yield is calculated by dividing the net investment income per share for the 30 days ended on the date of the calculation by the net asset value per share on that date. The SEC has required fund managers to report uniform, annualized 30-day yields since 1988.

Secondary market
Markets for the purchase and sale of any previously issued financial instrument. The first sale of a financial instrument by the original issuer is said to be made on a primary market. All subsequent trades are said to be secondary market.

Secondary sources
Less reliable, slower to achieve cash sources. Part of the counter balancing capacity. Actions that reduce or delay outflows and actions that increase or hasten inflows. For example, a sales incentive program for one-year CDs can be thought of as a secondary source to increase expected future cash inflows.

Section 17(f)
See Securities and Exchange Act Section 17(f).

Secured party
A creditor that has been granted a collateral interest in property. The collateral interest is usually given to the creditor by the debtor but may be given by a guarantor or another third party.

Securities and Exchange Act Section 17(f)
A legal provision that requires investigations for possible lost or stolen securities. See Securities Information Center.

Securities and Exchange Commission (SEC)
The Federal agency with responsibility for regulating financial exchanges for cash instruments.

Securities Information Center (SIC)
A corporation that has been designated by the SEC to maintain and operate a national database of lost and stolen securities. Under Section 17(f) of the Securities and Exchange Act, banks, brokers, and dealers are required to use this database.

Securities Investors Protection Corporation (SIPC)
A private corporation providing insurance to brokerage firms to cover customer accounts up to $500,000 in securities (including $100,000 in cash).

Securities lending
The temporary transfer of securities from an investor’s portfolio to a counterparty borrower. The counterparty may borrow to cover securities transaction fails (securities sold but for some reason unavailable for delivery to the buyers), short sales, or other trading activities such as arbitrage. While corporate stocks used to be the most common securities lent, U.S. government and agency securities now comprise a major portion of this activity. Securities loans are usually secured by the pledge of U.S. government or agency bonds. Alternatively, cash or letters of credit may back some securities loans. The value of the collateral pledged exceeds the value of the securities lent by an agreed-upon collateral margin. When a securities loan is terminated, the securities are returned to the lender and the collateral is returned to the borrower. The two main risks in securities lending are counterparty risk (a form of credit risk) and reinvestment risk (a form of interest rate or market risk).

Securitization
The process and the result of pooling financial assets together and issuing liability and equity obligations backed by the resulting pool of assets to convert those assets into marketable securities. The underlying assets are usually, but always, non-marketable by themselves. Any type of financial asset can be securitized. Securitized mortgage obligations may be called mortgage backed securities or collateralized mortgage obligations. Securitized non-mortgage assets are typically called asset backed securities however the term collateralized debt obligation is increasingly used to refer to securitized corporate debts. A single loan or groups of similar loans may be securitized. Loans to be securitized must usually be underwritten with terms and documents that conform to wholesale market standards. For some securitizations, additional credit support, called credit enhancement, may be obtained through insurance, a letter of credit, over collateralization or other means. Many securitizations use multi-tranche structures that allocate the principal and interest cash flows from the underlying assets in patterns that create higher and lower risk securities. See collateralized debt obligation, collateralized mortgage obligation, mortgage-backed security, special purpose vehicle and waterfall.

Security agreement
An agreement between one or more debtors and one or more creditors in which the debtor grants the creditor an interest in the debtor’s personal property as collateral for the debt. (Alternatively or in addition, the collateral may be property owned by a guarantor or by another third party.) As used in Article 9 of the Uniform Commercial Code, it is an agreement that: is in writing; gives the names of the parties; is signed or authenticated by the debtor; describes the collateral; and includes language stating that the debtor is granting or giving the security interest in the collateral to the creditor. While the security agreement establishes the creditor’s interest in the collateral, it does not establish the priority of the creditor’s interest relative to the interests of other creditors. See financing statements and perfection.

Security interest
Term used to describe an interest in personal property (collateral) owned by a debtor.

Security margin
See margin.

Self-assessment
A risk evaluation approach. A subjective process of identifying risks, assessing the likelihood that they will occur and estimating the impact if they do occur. Although self assessment can be applied to any risk, it is primarily applied to operations risk - especially for the quantification of operations risk under Basel II guidelines. Self assessment is a major element in COSO.

See Basel II, COSO and operations risk.

Self-contained appraisal report
One of three types of real estate appraisal reports defined under Uniform Standards of Professional Appraisal Practice rules. A self-contained appraisal report is the most detailed of the three report formats.

Sell/buyback
See buy/sellback.

Senior creditor
A creditor holding senior debt.

Senior debt
Obligations of an issuer for which repayment has contractually been given a priority that is higher than the repayment priority of other debts of the same obligor. This arrangement may arise from either a specific subordination agreement or a public issuance of subordinated debt instruments.

Senior Residential Appraiser (SRA)
A designation earned by qualifying residential real estate appraisers. It is awarded by the Appraisal Institute.

Sensitivity test
Sensitivity analysis
A single variant test to see how dependent a forecast, projection or stress test outcome is upon a single, selected variable or assumption. For example, a bank AL manager might perform a sensitivity analysis by examining a range of rate risk forecasts where the only difference in the forecast generation is a range of possible values for savings account maturities. In that example, the AL manager would be able to see how sensitive the projected rate risk exposure is to changes in the savings maturity assumption.

Sequential-pay REMIC
The most basic, simplest REMIC structure. All investors owning a sequential-pay REMIC receive interest payments; however, the principal received from the underlying mortgages is directed to repay each tranche, one at a time, in a predetermined order.

Serial bond
A bond that provides for the amount of debt to be divided into a series of different staggered maturities. For example, instead of issuing$10 million of 15-year bonds, a municipality may issue $10 million with $1 million maturing each year from the year 6 to the year 15. By issuing debt in serial form, the municipal issuer can match its need to redeem maturing debts to its cash flow. This form also enables the issuer to save money since the shorter-term bonds carry a lower interest cost than longer-term debt.

Servicing
The collection of principal, interest, and sometimes property taxes from borrowers; accounting for the cash flows due and the cash flows received; and remitting the cash flows to the entitled recipients.

Servicing spread
A percentage of a loan’s or security’s principal amount that is paid to a third party as compensation for servicing. For example, in a mortgage pass-through security, the interest paid to the investors is typically one-half
percent less than the weighted average coupon rate paid by the underlying borrowers. In that example, the one-half percent difference is the servicing spread.

Set off
(1) In general, the legal right to reduce the amount owed by one party to another party by the sum that the second party also owes to the first party.

(2) The confiscation of a deposits held by a borrower to offset some or all of the amounts owed by the depositor the depository institution for defaulted loans. A common law right that is usually blocked or reversed by a bankruptcy court.

Settlement
(1) Noun — The standard number of days between the date that a purchase or sale is agreed upon (the trade date) and the date that the security and the payment actually change hands (the settlement date). See net settlement and regular way settlement.

(2) Verb — The process of exchanging a security delivered by a seller for the payment delivered by a buyer.

Settlement date
The agreed-upon date for transferring funds to complete a transaction. For example, the date of both the delivery of and the payment for a security.

Settlement risk
The possibility that operational problems might interrupt or delay the settlement of a purchase or sale of a financial instrument.

SFAS
See statement of financial accounting standards.

Shiftability theory of liquidity
An explanation of bank liquidity that holds that a bank’s capacity to meet liquidity demands is related to the volume of its assets that can be readily shifted to another bank.

Shareholder value added (SVA)
A financial performance metric that attempts to measure the benefit created for a firm's capital holders. It is expressed in dollar terms for a period - not as a percentage return ratio. SVA is an adjusted value for after-tax earnings, for a period of time, minus the opportunity cost associated with the firm's capital. The net of those quantities is a measure of the surplus or additional value provided to the shareholders as a result of the firm's activities. The adjustments made to the reported amount of after-tax earnings are intended to remove distortions resulting from accrual accounting. For example, provisions for bad debts are usually added back to income and actual losses from bad debts are subtracted instead. Cash taxes are used instead of book taxes. One of the main attractions of this performance metric is that fact that, unlike measure of return on market value, it can be applied to segments within a firm. Accordingly, it is primarily used by managers to evaluate the performance of divisions or branches. Some users apply SVA down to the account manager or customer level.

The phrase "shareholder value added" is favored because the phrase "economic value added" is marked. See value based management.

Short
(1) noun — The position of an investor who sells, or commits to sell, a security in either the cash or futures markets. For example, the sale of an interest rate future is a commitment to deliver securities at some future date in exchange for an agreed-upon amount. This is called a short futures position.

(2) verb — The act of selling or committing to sell in the future.

Short sale
The sale of security that is not owned by the seller. The seller borrows the security, sells it, and then buys it at a later date to return it to the lender. The purpose of a short sale is to attempt to profit from the fall in the price of a security. Short sales are considered trading activities. For banks, when the security that is sold is "borrowed" from the seller's investment portfolio, the transaction is not considered a short sale; it must be treated as an outright sale of the underlying security.

SIC
See Securities Information Center.

Sight draft
A draft that is payable upon presentation to the drawee.

Simulation VAR
See empirical VAR.

Single-family loans
Loans secured by properties occupied by one to four families.

Single monthly mortality rate (SMM)
A measure of the amount of monthly principal reduction in excess of the scheduled monthly principal payment. The SMM is simply the amount of prepaid principal in a given month expressed as a percentage of the principal balance at the beginning of the month. It is not commonly quoted; however, an annualized SMM, called the constant prepayment rate or CPR, is commonly quoted.

Single-payment loan
Another name for a time or balloon loan. A closed-end loan that does not require periodic principal payments. Instead, the full amount is due at maturity.

Sinking fund
Cash set aside under restricted conditions as required by the terms of certain types of debt. See sinking fund bonds (sinkers).

Sinking fund bonds (sinkers)
Revenue bond issues that require the issuer to accumulate or set aside part of the annual revenue which is then used to redeem bonds before maturity, often well before regular call dates. The set-aside funds are called the sinking fund. The quantity of bonds subject to a sinking fund call is established in a sinking fund schedule. The specific bonds that are called each year are normally chosen for redemption by the drawing of random lots. Sinking fund calls are usually at or near par.

SIPC
See Securities Investors Protection Corporation.

Skew, skewness
Term used to describe an asymmetrical probability distribution.

Skip day settlement
A phrase used to describe the agreement of a buyer and seller to exchange the security and the payment two business days after the trade date. See settlement.

SLMA
See Student Loan Marketing Association.

Slow pools or slow-pay
An informal name for mortgage-backed security pools that repay slowly.

Small business-related security
A type of security defined in Section 3(a)(53) of the Securities Exchange Act of 1934. A security that represents ownership of one or more promissory notes or leases that are evidence of the obligation of a small business concern. It does not mean a security issued or guaranteed by the Small Business Administration.

Smoothing
Also called yield curve smoothing. The name for a set of alternative techniques for creating continuous yield curves by connecting the dots between observed. If, for example, we have observed rates for 1, 2, 3, 5 and 10 year maturities, smoothing is the technique used to infer rates for all maturities between those known points. The known points are called "knot points". The simplest smoothing technique is "linear smoothing". The most commonly used technique is "cubic splines". For forward rates, the most accurate method is called "maximum forward rate smoothing".

SMBS
See stripped mortgage-backed securities.

SMM
See single monthly mortality rate.

Society for Worldwide Interbank Financial Telecommunication (SWIFT)
A privately owned electronic payments system used for funds transfers between member banks. See Clearing House Interbank Payment System (CHIPS) and Fed wire.

Soft call protection (for convertible bonds)
One of two types of call protection. Soft or provisional call protection prohibits an issuer from calling a bond issue until a certain threshold price level for the underlying stock has been reached. For example, the bond structure might specify that the bonds may be called when the closing price of the underlying stock is at least 120-150 percent of the conversion price for any 20 out of 30 consecutive trading days. Soft call provisions will be in effect for two to three years after hard call protection has expired. Soft call protection is a compromise between issuers and investors. It guarantees that the issuing company will not be able to call the bonds until the investors have achieved a certain level of profitability, but it also provides issuers with more flexibility than that available from hard call protection and allows the company to call the bonds once the bondholders have achieved a certain threshold level of returns.

Soft costs
Soft costs are legitimate expenses incurred by a borrower or developer for things not directly reflected in the construction value of the property.

Software
(1) A computer program, any informational content included in the program, and any supporting information provided in connection with a transaction relating to the computer program or informational content.

(2) A category of personal property collateral defined by the 2001 revisions to Article 9 of the Uniform Commercial Code.

Solvency
The condition of having sufficient funds to cover losses. In the short term, solvency is a manifestation of liquidity. Fundamentally, however, solvency is a function of capital adequacy. See insolvency.

Solvency risk
The risk of not being able to cover losses regardless of the source, type, or size of the losses. In a broad sense, solvency is often equated with liquidity risk since ready money is needed to cover losses. However, it is more accurate to say that the ultimate source of funds available to cover losses is capital. Therefore, solvency risk is the risk that the bank will default. Ultimately, it is the risk of bank failure.

Spec
An informal lender's term for real estate projects that are built in anticipation of finding tenants; the term "spec" is lender slang for speculative.

Special assessment bonds or notes
Municipal securities repaid from taxes that are imposed only on the individuals who are considered to directly benefit from public improvements made to a neighborhood or community within the municipality. The most common examples are school district bonds. These bonds are repaid from taxes, most often property taxes, imposed on residents served by the school district. Another example is securities issued to finance installation of a sewer system extended to a neighborhood.

special purpose entity (SPE)
special purpose vehicle (SPV)
A legal entity, sometimes a trust or a limited partnership, that is created solely for the purpose of holding assets.

(1) The SPV may be used to obtain "off balance sheet funding" by obtaining secured loans backed by its assets. GAAP accounting rules may permit the assets and liabilities of the SPV to be unconsolidated and therefore off the balance sheet of the entity that generated the assets.

(2) The SPV may issue securities backed by its assets. In a typical collateralized debt obligation, the underlying assets are owned by a special purpose vehicle. The SPV then issues different classes of securities with different risk characteristics. Note that the term "CDO" may be used to refer to the SPV or to the securities that are issued by the SPV.

Special tax bonds or notes
Municipal securities that are repaid solely from specific taxes. These taxes are typically excise taxes imposed upon purchases of items such as gasoline, tobacco products, or liquor. Only the revenue collected from that specific tax is available to pay interest and principal due for the securities.

Speed
The rate at which an MBS prepays. An MBS with little or no prepayments is said to have a slow speed. An MBS with significant prepayments is said to have a high speed or to be speeding. Since pools that prepay faster than anticipated can perform much worse than investors hoped, investors only half jokingly say that speed kills. See CPR, prepayment estimate and PSA for information about measures of speed.

Split-term amortization
An amortization schedule that has periodic payments inconsistent with the maturity date of the debt. For example, a 5/10 amortization schedule requires payments just large enough to fully amortize the debt in 10 years together with a final maturity date only 5 years in the future. Split-term amortization schedules result in balloon payments at maturity.

Spot delivery
The transfer of financial instruments or commodities upon purchase.

Spot market
Market for the purchase or sale of financial instruments, commodities, or other assets for cash settlement and immediate, as opposed to future, delivery. Also called the cash market.

Spot price
The price available in the spot market.

Spot rate
The rate available in the spot market as opposed to forward rates.

Spot yield curve
See yield curve.

Spread
(1) noun — The difference between two prices or two rates. Different users have many different and highly specific usages of this term. For example, traders use spread to mean the difference between bid and asked prices for a security. Underwriters use spread to mean the difference between the price realized by the issuer and the price paid by the investor. Bank analysts use spread to mean the difference between the average rate paid on a bank’s assets and the average rate paid on the bank’s liabilities. (In connection with the use of the term spread by bank analysts, see net interest margin. In ALM, when spread is used as a noun it most often refers to the difference between two rates or yields.

(2) noun — Financial analysts, credit analysts, and lenders use the term spread to refer to a financial statement that has been converted to a standard format for purposes of analysis or comparison.

(3) verb — In ALM, most often means the disaggregation of a quantity. For example, the total amount of certificates of deposit on a bank’s balance sheet may be spread into different time interval buckets on a gap report.

(4) verb — The process of reformatting financial statements for the purposes of analysis or comparison.

Spread lock
A contract that guarantees the ability to enter into an interest rate swap at a predetermined rate above some benchmark rate.

Spread-over Treasuries
The difference between the bond equivalent yield for any investment and the bond equivalent yield for a Treasury investment with the same maturity. Comparisons of the returns for most fixed-income investments are typically made using spread over Treasury values. Investments of the same type but different maturities as well as different types of investments can be readily compared in this manner. For example, one MBS may offer a bond equivalent yield that is 20 basis points above Treasury yields while another may offer a 40 basis point spread.

Spread risk
See basis risk.

Spreader clause
A provision in a mortgage or security agreement that attempts to extend the security interest granted to the creditor to cover not only the described debt but also all other present and future indebtedness of the debtor.

Spreads and spreading
Bankers almost always change the format of the borrower's financial statements to a standard format used by the bank in order to facilitate both analysis and comparisons. The process of restating the format is usually called spreading and the reformatted reports are often called spreads.

SRA
See Senior Residential Appraiser.

Staff appraiser
An individual qualified under Federal rules to perform real estate appraisals who is employed by and performs appraisals for the financial institution contemplating the extension of credit to be secured by the property to be appraised. The opposite of a fee appraiser.

Stage payments
Advances made under construction loans when the loan proceeds are disbursed only as specific construction tasks are completed. For example, a portion of the loan proceeds may be disbursed after the foundation is poured. Construction lenders often disperse funds in 4 or 5 stages; however, as many as 10 stages are common.

Standard deviation
A statistical measure of the extent to which measurements vary from their mean. A quantification of the dispersion for a set of data. For example, if the high temperature each day in one four-day period was 70 degrees, 71 degrees, 69 degrees, and 70 degrees, that four-day period has a mean (average) high temperature of 70 degrees. A second four-day period might have high temperatures of 70 degrees, 60 degrees, 80 degrees, and 70 degrees. That second period also has an average high temperature of 70 degrees. Even though both four-day periods had the same average high temperature, they were quite different. In the first period, the standard deviation is quite small. There is little dispersion. In the second period, the standard deviation is much larger.

Standard mortgagee clause
A provision in a hazard insurance contract stipulating that in the event of a loss, proceeds will be paid to a secured party. Usually used when the insured property is real property. Includes personal property that is insured as contents of the insured real property. Sometimes referred to as simply a mortgagee clause, the standard mortgagee clause is actually a much broader, stronger type of insurance policy stipulation. Under the standard mortgagee clause, the secured party is protected against any act or neglect of the insured that may otherwise invalidate the policy for the owner. For example, if an insured burns down his insured property, his arson may void his insurance coverage, but it does not invalidate the insurance protection provided to his secured lender. Sometimes called a New York mortgagee clause. See mortgagee clause.

Standardized Approach
One of three methods for quantifying capital required for operational risk under proposed Basel II capital rules. Banks using the Standardized Approach must hold capital for operational risk based the gross income for each of eight separate, defined lines of business. See also Advanced Measurement Approaches, basic indicator approach and operations risk.

Standby letter of credit
An obligation issued by a bank on behalf of a bank customer to a third party. 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. Standby letters of credit are often used as credit enhancements for securities issued by bank customers.

Standby liquidity
Liquidity held for liquidity contingency risk. Also called prudential liquidity.

Stated delay
See delay days.

Statement of financial accounting standards (SFAS or FAS)
A ruling issued by the Financial Standards Accounting Board (FASB) covering a particular topic. Usually, these statements are referenced with the acronym FAS followed by the numeral for a specific statement. For example, FAS 119 covers disclosures required for holdings of derivatives. See FAS [numeral] for more information on specific accounting rulings.

Statement savings account
A savings account which does not provide the depositor with a passbook. Instead, the depositor receives a monthly or quarterly statement from the bank.

Static gap analysis
Gap analysis method that measures exposure to interest rate risk based solely upon the assets and liabilities held by the bank at the time that the analysis is performed. The opposite of dynamic gap analysis.

Static spread
(1) The difference between two values at a single point in time. For example, the difference between two yields.

(2) The calculated spread over the Treasury yield that the investor would realize from all of the cash flows produced by his investment if it is held to maturity. Those cash flows are each compared to the Treasury spot rate curve. Because the cash flows from a security are each compared to the Treasury yield curve, the static spread is a spread over the entire curve. Each of the cash flows from a bond is discounted to a present value using the spot Treasury rate with the same maturity as the cash flow. Those present values are then totaled. The static spread amount must be added to the discount rates obtained from the Treasury spot curve so that the sum of the discounted cash flows equals the bond's price.

Statutory lien
A lien created by either federal or state legislatures or through court rulings. For example, a lien that banks are given against a borrower’s deposits. See consensual lien and judicial lien.

Steep yield curve
See yield curve slope.

Step-ups
A form of callable security for which the coupon rate increases if the security is not called.

Sticky
(1) A term used by economists to describe changes in dependent variables that tend to lag behind changes in the independent variables with which they are associated. For example, time lags are known to exist between changes in prevailing interest rates and changes in the rates offered on bank core deposit products. But they are sticky. Almost all banks are able to change the rates paid on their administered-rate deposit products after rates for money market instruments have already changed.

(2) An informal term used to describe the propensity of a deposit of indeterminate maturity to remain a stable source of funding.

Stochastic
A term used to describe outcomes based on uncertain relationships. The process of change in a variable resulting from change in a parameter. For example, option adjusted spread measures of yield and Monte Carlo models of interest rate risk are stochastic measures. A method of modeling changes that allows for a range of possible outcomes. Sometimes called probabilistic. The opposite of deterministic.

Stock power
A document assigning ownership of stock.

Straddle
An options trading strategy involving the purchase of an equal number of put and call options for the same underlying at the same strike price and with the same maturity. An options trade designed to profit from an increase in the volatility of the price for the underlying.

Straight-line depreciation
A method for achieving periodic reductions in the book value of fixed assets in which each periodic reduction is the same amount as every other reduction for the same asset.

Strangle
A trading strategy using options that is designed to profit from material increases in the volatility of the underlying. Similar to a straddle but using only put and call options with strike prices that are out of the money.

Strategic risk
One of nine risks defined by the Office of the Comptroller of the Currency. The risk to earnings or capital arising from a bank’s adverse business decisions or improper implementation of those decisions.

Strategic trading
See proprietary trading.

Street
A colloquial expression used to describe Wall Street investors or the community of dealers. For example, the street consensus of prepayment speeds is the average forecast of prepayment speeds from major mortgage-backed securities dealers.

Street name
A name used by a broker or bank as the legal owner of a security actually owned by a client or customer. The true owner is called the beneficial owner. Street names are often assumed names or partnership names used by banks and brokers.

Stress test
A multivariate test of a specific scenario at a specific stress level. Not to be confused with single variant testing of variables in a projection or forecasted scenario. See sensitivity test.

Stress testing
Stress analysis
Stress scenario
Usually called stress testing but also known as stress analysis or stress scenario analysis. Modeling a series of unusual, hypothetical events or scenarios. Stress tests may model the impact of extreme market conditions, or they may model the change in the measured amount of value at risk (VAR) that occurs when simulation assumptions are pushed to extremes. For example, stress tests for correlation measures of VAR include simulations in which the correlations are assumed to change dramatically. See value at risk (VAR).

Stressed PAC
A planned amortization class (PAC) CMO tranche in a CMO experiencing rapid prepayments of underlying collateral. The PAC tranche is still performing within expected ranges, (i.e., it is not a busted PAC); however, the support tranches are under strain. A stressed PAC will become a busted PAC if the prepayments continue at or near their current speed. See busted PAC.

Strike price
See exercise price.

Stripped mortgage-backed securities (SMBSs)
Mortgage securities that separate principal and interest payments from the underlying mortgage-backed securities. SMBSs can take four forms: interest-only strips, called I/O strips; principal-only strips, called P/O strips; discount strips; and premium strips. I/O and P/O strips are the more common of the four. Today, REMIC CMOs are used far more frequently than SMBSs to create securities with the same cash flow characteristics.

Strips
Principal and interest cash flows due from any interest-bearing securities can be separated into different financial instruments. This is done by stripping each coupon payment from the underlying investment to create a separate security. For example, a 5-year note can be separated into 11 pieces: 10 semiannual coupon payments and the final principal payment. Each of these 11 pieces is a separate cash flow that can be purchased or sold just like a Treasury bill. The cash flows are sold at a discount. The amount of the discount and the time until the cash flow is paid determine the investor's return.

Structural liquidity
A term used to refer to the liquidity available to a financial institution from its current positions - principally its unpledged marketable assets and its holdings of term liabilities with long remaining lives.

Structured finance
A general term used to describe either the practice or the result of creating securities by repackaging cash flows from financial contracts. Examples include MBSs, CMOs, ABSs, and CDOs.

Structured notes
The broad, regulatory definition of this term is debt securities whose cash flow characteristics (coupon, redemption amount, or stated maturity) depend upon one or more indices and/or that have embedded forwards or options. For example, since the early 1990s, U.S. government agencies have been issuing unsecured bonds and notes with coupons that are fixed for a predetermined time and then increase or step up to a higher amount if the securities are not called. Embedded forwards and options in the structure of notes allow underwriters to create an unlimited number of risk/reward profiles and to customize risk characteristics to fit an investor’s desired risk exposure. By this broad definition, structured notes include all CMOs. However, the term also includes a variety of other securities that are not necessarily mortgage related. In fact, many structured notes are not mortgage backed and some definitions of this term explicitly exclude mortgage-backed securities. Sometimes called hybrid securities.

Student Loan Marketing Association (SLMA)
A U.S. government sponsored, privately owned corporation that provides liquidity for student loans and for the credit needs of students. Informally but widely known as Sallie Mae.

Subordinate debentures
A type of corporate bond for which the indenture covenants provide that some of the company's debt has a lower priority than other debts in the event of a liquidation. For example, some bonds may be subordinate to others. Subordinate bonds are usually unsecured. Unsecured subordinate bonds may be referred to as subordinate debentures.

Subordinate, subordinated, subordination
Debts or claims that have a lower status or priority than other debts or claims are subordinate. For example, creditor A may agree in a subordination agreement to have its claims on the cash flow or on the assets of a borrower lower in priority than (i.e., subordinate to) the claims to that cash flow or collateral by creditor B. In finance and accounting, the term also refers to debts that include provisions making them subordinate to other liabilities. For example, a bond issue may, by contractual agreement, be subordinate to all other bonds issued by a company.

Subordination and attornment agreements
Documents used in commercial mortgage transactions in which the mortgaged property is leased by the borrower to tenants. The agreement is executed by the tenants in favor of the lender. By executing the agreement, the tenant/lessee agrees to subordinate its lease to the mortgage that the borrower/lessor is granting to the lender. These agreements give the lender more rights and more flexibility for disposing of the property in the event that the borrower defaults.

Subsidiary
A separate corporation that is owned by another corporation.

Subsistence certificate
A written form prepared by a state office or officer attesting to the fact that a named corporation is in good standing in that state.

Suitability
A term used in the securities industry to describe the match between the risk characteristics of any investment and the investment needs, risks awareness and risk appetite of any buyer. Brokers and dealers have substantial legal and ethical responsibility to make sure that what they sell is suitable for each buyer.

Summary appraisal report
One of three types of real estate appraisal reports defined under Uniform Standards of Professional Appraisal Practice rules. A summary appraisal report provides the middle level of detail of the three report formats.

Super floater
Floating rate CMO tranches that have coupon rates that are determined by formulas such that the interest rate paid is a multiple of an underlying rate minus a stated spread. For example, a superfloater may pay interest at the rate of 3 times 1-month LIBOR minus 16 percent. In this example, if 1-month LIBOR is 5 percent, then the coupon rate for this super floater might be a negative 1 percent. However, to prevent the possibility of negative interest rates, super floaters often have floors. Super floaters are more desirable in high or rising rate environments.

Super PO
A principal-only security structured as a companion bond.

Superfund Act
See Comprehensive Environmental Response, Compensation, and Liability Act of 1980.

Super-generic description
A collateral description in a security agreement, financing statement, or other loan document that is very broad and does not specifically list individual items of collateral, for example, "All of the Borrower’s Assets."

Support tranche
See companion tranche.

Supporting obligation
A letter of credit right or secondary obligation that supports the payment or performance of an account, chattel paper, document, general intangible, instrument, or investment property. A category of personal property collateral defined by the 2001 revisions to Article 9 of the Uniform Commercial Code.

Surety
Generally the same as guarantor; however, in some states there are important distinctions.

Survey
A precise physical determination of the location and boundaries of real property. Surveys are performed by qualified experts called surveyors. Survey findings are reflected in documents called surveys, survey reports, or certificates of survey. For unplatted land, the survey determines the location of the property with reference to known points. For all land, the survey shows the dimensions of the property, the location of improvements (such as buildings), and the dimensions of the improvements. Lenders use surveys to verify the legal description of property, to verify that the property discussed in appraisal reports is identical to the property owned by the borrower, and to verify that driveways, terraces, garden walls, and other structures do not cross property lines.

Survival horizon
(1) The forecasted time period, as revealed by a liquidity stress test, that the institution can continue to cover its liquidity needs (forward cash exposure) from sales of assets in its liquidity buffer.

(2) The forecasted time period, as revealed by a liquidity stress test, that the institution can continue to cover its liquidity needs (forward cash exposure) from its counter balancing capacity.

Suspicious Activity Report (SAR)
All financial institutions operating in the United States, including insured banks, savings associations, savings association service corporations, credit unions, bank holding companies, non-bank subsidiaries of bank holding companies, Edge and Agreement corporations, and U.S. branches and agencies of foreign banks are required to make this report following the discovery of: insider abuse involving any amount, violations aggregating $5,000 or more where a suspect can be identified, violations aggregating $25,000 or more regardless of a potential suspect, or transactions aggregating $5,000 or more that involve potential money laundering or violations of the Bank Secrecy Act. Casinos must file an SARC Form and Securities Brokers and Dealers are required to file an SAR-S Suspicious Activity Report. See also Bank Secrecy Act.

Sustainable growth rate
One term used to describe the maximum rate at which a firm's sales can grow without straining the capacity of the firm's financial condition. This term is closely associated with a formula of the same name.

SVA
See shareholder value added.

Swap
(1) The sale of one or more securities in order to purchase one or more different securities with the proceeds from the sale. Bond swaps are usually done to take advantage of changes in market conditions or more favorable investment characteristics. For example, swaps are often done to lengthen or shorten maturities when investors change their outlook for future rates.

(2) A financial instrument representing a transaction in which two parties agree to swap or exchange some obligation. Swaps began with currency swaps, but the idea quickly spread to interest rate exchanges. In an interest rate swap, one party agrees to swap fixed-rate loan payments with the floating-rate payments of the other party. Interest rate swaps are often used in hedging. See interest rate swap.

Swap curve
The yield curve of interest rate swap rates from 1 week to 30 years. See yield curve.

Swaption
An option to enter into a swap. A payer or put swaption is the option to enter into a pay fixed/receive floating swap. A receiver or call swaption is the option to enter into receive fixed/pay floating swap.

Sweep account
A deposit account, usually at a bank, that periodically removes a portion of the customer’s funds into a higher yielding instrument. Bank sweep accounts are often sold as cash management tools. With a bank sweep account, idle funds are swept each night from a transaction account into a higher-yielding, overnight investment. Some banks offer sweep accounts that only remove excess balances weekly. Brokerage firms offer sweep accounts as well with weekly or monthly sweep frequencies.

SWIFT
See Society for Worldwide Interbank Financial Telecommunication.

Symmetric
Behavior exhibited by financial instruments whose rates or values move linearly with respect to changes in market rates.

Syndication
An arrangement in which two or more banks lend directly to the same borrower pursuant to one loan agreement. Each bank in the syndicate is a party to the loan agreement and may receive a note from the borrower evidencing the debt. Banks involved in syndicated transactions often sell some or all of their allotment in the credit facility.

Synthetic CDO
A CDO that uses credit default swaps rather than actual corporate obligations to create a pool of credit exposure. See collateralized debt obligation (CDO).

Synthetic hedges
A somewhat out-of-date term for capital markets hedges. Hedges that use derivatives.

Systemic liquidity risk
Liquidity risk arising from causes external to the entity. Systemic liquidity requirements can take a number of forms:

(1) Macro economic corrections. These may be recessions or credit crunches. They may be national or regional in scope.

(2) Capital markets disruptions. These types of liquidity crises are more common. An excellent recent example is the flight to quality that occurred in August and September of 1998 after the collapse of the Russian ruble and the rescue of a highly leveraged hedge fund.

(3) Payments systems disruptions. Banks are heavily dependent upon a few national and international data systems for transferring funds. A disruption in one of these systems can easily and quickly cascade into a major systemic problem.