Banker's Glossary


(1) A lender's informal expression for a collateral margin. The amount by which the value of collateral exceeds the loan it secures. Commonly used with repurchase and reverse repurchase agreements informally called repos and reverses.

(2) The dealer's commission for a transaction.

An informal name for the portion of a security's price that is comprised of the numbers to the left of the decimal point, colon, or dash. For example, if a bond's price is 103.25, its handle is 103. Sometimes brokers and dealers only quote the numbers to the right of the decimal point and assume that the handle is understood.

Hard call protection
For convertible bonds, one of two types of call protection. Hard call protection prohibits an issuer from calling an issue within a certain period of time. For convertible bonds, hard call protection is most often set at three years, but can range from two to five years.

Hazard insurance
Insurance covering losses incurred by an insured as a result of damage, destruction, or loss of property. Mainly, but not entirely, insurance against fire and lightning damage. Insurance other than life or liability insurance.

Health care insurance receivable
An interest in or claim under a policy of insurance which is a right to payment of a monetary obligation for health care goods or services. A category of personal property collateral defined by the 2001 revisions to Article 9 of the UCC.

(1) Verb— To reduce risk or behavior that reduces risk from future price movements.

(2) Noun — A transaction undertaken to reduce risk by offsetting the risk in another transaction. The risk in one position is hedged by counterbalancing it with the risk in another transaction. The values of each position must change inversely and with a high degree of correlation. Hedges may be cash to cash in which a position in a cash instrument such as a loan or investment reduces or offsets the risk in another cash position such as a deposit. For example, a $1,000,000 investment in a U.S. Treasury bond maturing in 10 years and a $1,000,000 certificate of deposit are largely (but not completely) offsetting risks. Hedges may also be cash to futures or futures to futures.

Hedge accounting
Deferring recognition of unrealized gains and losses from a hedge instrument until the corresponding gains or losses from the hedged instrument(s) are recognized. See FAS 133 and FAS 149.

Hedge effectiveness
The extent to which a hedge transaction results in the offsetting changes in value or cash flow that the transaction was and is intended to provide. FAS 133 requires users to regularly assess the effectiveness of hedges. Furthermore, under FAS 133 only the portion of a transaction that is deemed effective may qualify for hedge accounting treatment. Under FAS 133, any part of fair value changes in a derivative that are not perfectly correlated with the fair value (or variable cash flow) changes of the hedged item must be reported in current earnings. FAS 133 does not delineate a specific methodology for assessing whether a hedge is expected to be highly effective or for measuring hedge ineffectiveness. Hedge effectiveness is a very broad concept, and FASB believes each company must define it relative to the intent of its hedging activities. The only requirement is that there be a reasonable basis for assessing hedge effectiveness. The focus on hedge effectiveness in FAS 133 contributes to a significant difference between previous practice and the new accounting standard. Whereas the earnings effect of minor hedge ineffectiveness was spread over the life of the hedge in the past, the FAS 133 rules result in anything other than perfect correlation being recorded in current earnings. Thus under FAS 133 there is the potential (and even likelihood) that hedges may have both an effective component and an ineffective component even for a highly effective hedge. The fact that some portion of a derivative is ineffective does not preclude a hedge from being deemed highly effective. See cash flow hedge, fair value hedge, and FAS 133.

Hedge ratio
The relationship between the size of a position needed in a hedge instrument and the size of the position being hedged. The hedge ratio is determined by the delta.

Held-to-maturity (HTM)
One of three defined categories established in FAS 115 for the classification of financial instruments held as assets on the books of an investor. HTM securities are those the investor intends to hold to maturity and is able to hold to maturity. Designation of a security as HTM allows the investor to report the security value at historical cost plus accretion or minus amortization. Unrealized gains or losses are not shown on the balance sheet, reflected in reported income, or reflected in reported net worth. FAS 115 imposes conditions that restrict an investor’s flexibility to remove securities from the HTM category. See available-for-sale, FAS 115, and trading.

Hidden option
An option feature in an instrument in which the option feature is only a minor feature of that product. Sometimes called an embedded option. They are hidden because they are not separate, detachable features that issuers or holders can add or subtract to customize individual transactions. Instead, they are one part of a number of features embedded in the product.

A phrase used to describe investments with the highest quality ratings — usually AAA or AA.

High-yield securities
(1) A formal name for junk bonds.

(2) All bonds in the following credit categories as defined by NASD Rule 6200 Series as "Non-Investment Grade": BB, B, CCC, CC, C, C, and NA/NR.

A table or bar chart displaying a probability distribution. All of the probabilities in the histogram total to 100 percent. The frequency of the data for each interval is represented by the height of the bar. The technique can be used to combine a group of individual rate forecasts to obtain a single probability weighted average of the various subjective predictions for interest rates.

Historical VAR
A measure of a financial instrument’s, a portfolio of financial instruments’, or an entity’s exposure to reductions in value resulting from changes in prevailing interest rates. Historical VAR is one of several different methods for calculating VAR. Historical VAR calculates value at risk by comparing the actual volatility of components or risk elements within a portfolio to the historical sensitivity of those components. This provides a range or distribution of possible losses. A single value at risk can then be calculated for the selected confidence level. Historical VAR is generally preferred for its ability to capture risk from unlikely events. However, the measured amount of VAR is heavily influenced by the choice of time horizon and by the volatility that occurred during that historical time period. If future changes do not resemble the change in value that occurred during the selected time horizon, the forecasted VAR will not be a good indicator of the real risk. See correlation VAR, empirical VAR, and value at risk (VAR).

See Home Mortgage Disclosure Act. Pronounced hum-da.

A process by which a bank restricts funds deposited by checks. Usually but not always used to restrict the proceeds of checks drawn on other banks until the funds have been transferred by the drawor’s bank to an account that the depositor’s bank maintains with the Federal Reserve.

Hold-harmless agreement
A contract under which the liability of one party for damages is assumed by another.

Home Mortgage Disclosure Act (HMDA)
A Federal statute that requires most lenders in metropolitan areas to collect data about their housing-related lending activity. Lenders must file annual reports with their Federal supervisory agencies and make disclosures available to the public regarding their origination of housing-related loans. The reports cover loan originations, applications that are declined or withdrawn, and loan purchases. The data is used to evaluate possible discrimination in loan approvals. The Federal Reserve Board of Governors has adopted Regulation C to implement this statute. The information collection requirements were expanded in 2004. See loan application register.

Home Ownership and Equity Protection Act (HOPEA)
A 1994 Federal statue enacted to address perceived abuses in high cost home mortgage lending. Final rules implementing this law where adopted by the Federal Reserve Board as amendments to Regulation Z, Truth-In-Lending in December 2001.

Horizon analysis
A less-common name for total return analysis. The term "horizon analysis" derives from the fact that total return analysis requires the user to select an ending date for the investment being analyzed. That ending date is sometimes called the investor's horizon.

Hot money
An informal term used to describe funds provided by the most price-sensitive and credit quality-sensitive sources. The bank liabilities that are likely to be lost most quickly in the event of a loss of confidence or competitiveness.

See Department of Housing and Urban Development.

Hybrid or hybrid security
A package or combination of financial instruments. Hybrid structures range from simple to highly complex. See structured notes.

(1) An archaic term for pledging that did not involve either possession or title transfer.

(2) Any pledge of an asset as collateral for a debt. (An uncommon but correct usage.)

(3) The pledge of marketable securities or deposits to secure a loan — particularly the pledge of marketable securities or deposits owned by someone other than the borrower.