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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


TAC tranche
See targeted amortization class tranche.


Takedown period
A time period during which a borrower is permitted to draw down (i.e., request and receive advances from) the proceeds of a loan.


Takeout commitments
Legally binding commitments made by end lenders to construction lenders. The end, or permanent, lender commits to providing financing to the property owner that will pay off the construction loan. End lenders may be banks, insurance companies, pension funds, or others. Also see permanent lender.


TAN
See tax anticipation notes.


Tangible equity or tangible net worth
Terms used to describe the amount of owners' or stockholders' equity after deduction of intangible assets. Total assets minus intangible assets minus total liabilities.


Targeted amortization class (TAC) tranche
Bonds created in scheduled-pay CMO structures. A TAC tranche is structured to avoid prepayment volatility. Each TAC has a designated target speed. When prepayments exceed the targeted speed, the excess cash flow is diverted to other tranches in the CMO. Unlike a planned amortization class (PAC) tranche, a TAC tranche is not protected from extension risk if prepayments are slower than expected. For this reason, TACs can be viewed as half PACs. TACs offer investors protection (but not immunity) from call risk but no protection from extension risk.


Tax and revenue anticipation notes (TRAN)
Short-term notes sold by a public entity that will be repaid from the proceeds of anticipated tax and/or fee collections.


Tax anticipation notes (TAN)
Short-term notes sold by a public entity that will be repaid from the proceeds of anticipated tax collections.


Taxable equivalent yield (TEY)
The yield that a tax-free investment would provide to an investor if the tax-free yield was "grossed up" by the amount of taxes not paid. This is the most common way of comparing yields on taxable and tax-free investments. Instead of reducing a taxable yield by the amount of applicable taxes to compare it with a tax-free yield, the tax-free yield is increased by a hypothetical amount of income tax.


TB-13
See Thrift Bulletin 13.


TBA
Acronym for to be announced. Most new MBS pass-through bonds can be purchased on a TBA basis.


Teaser
A teaser rate is a below-market interest rate offered to borrowers of adjustable-rate loans during the initial period of some adjustable-rate mortgages. A teaser period is the period of time during which the teaser rate applies.


Technical review
One of two types of real estate appraisal reviews. A technical review is a review performed by another appraiser. The primary purpose of the technical review is to determine whether or not the appraisal meets Uniform Standards of Professional Appraisal Practice requirements and whether the opinions and conclusions in the report are reasonable. Technical reviews ordinarily do not challenge the original appraiser’s choice of comparables unless there is an obvious problem. See administrative review.


TED spread
The difference between U.S. Treasury bill yields and yields for Euro deposit contracts of the same maturity. The TED spread is used as a measure of investor confidence. When the spread is small, investors are not requiring a large amount of additional compensation for the additional risk of Euro deposits. When the spread is large, investors are willing to give up yield to obtain the higher quality of U.S. Treasury bills. A sudden widening of the TED spread is indicative of a flight to quality. See quality spread.


Tenant acceptance letters or tenant estoppel letters
See estoppel letter.


10-K and 10-Q
Financial reports that must be filed by publicly traded corporations with the Securities and Exchange Commission (SEC). The quarterly reports are called 10Qs. The annual reports are called 10-Ks. Both must follow proscribed formats.


Term fed funds
Federal funds transactions made for tenors longer than one day. Typical term fed funds transactions range from a few days to a few months.


Term insurance
A form of life insurance that has no built-in savings feature and does not accumulate any cash surrender value.


Term note
(1) A name used to describe a promissory note used for any closed-end loan granted for a predetermined amount of time (e.g., short-term, medium-term or long-term).

(2) A name used in business or commercial lending to describe a promissory note that calls for mostly regular, periodic payments of principal and interest.


Term structure model
Also known as yield curve models. An assumption, or set of assumptions, used to describe future changes in interest rates over a range of maturities. The most simple term structure model is a parallel shift in rates, e.g. all rates rise by 1 percent. Implied forward rates may be the most common term structure model. More accurate models provide a systematic way to assume the random movement of the interest rates along the yield curve. These models constrain the range of movement of the rates, and the corresponding probabilities such that they are (i) internally consistent, that is, there is no riskless profitable arbitrage, and (ii) externally consistent, that is, the values of certain securities implied from the model agree with the market values. The following five term structure models are the most systemic and accurate: Vasicek, Extended Vasicek (Hull and White), Ho and Lee, Heath, Jarrow and Morton (constant volatility), and Heath, Jarrow and Morton (declining volatility).


Term structure of interest rates
The relationship between interest rates (or yields) for otherwise similar securities with different maturities. Yield curves are graphical depictions of the term structure of interest rates.


Termination
The action taken by a secured party to end or give up its interest in collateral. For personal property collateral, a termination may be entered into the public record by using a standard form called a UCC-3.


Termination date
The date on which cash flows due under a swap contract cease to accrue.


TEY
See taxable equivalent yield.


Theta
The Greek letter used in the financial industry to represent the amount by which the price of an option changes for each one-day decrease in the time remaining until its expiration.


Thrift Bulletin 13 (TB-13)
A rule published by the Office of Thrift Supervision (OTS) entitled Responsibilities of the Board of Directors and Management with Regard to Interest Rate Risk. This rule governs the measurement and management of interest rate risk at all insured savings and loan associations.


Tier 1 capital
A regulatory definition of bank capital. Tier 1 capital consists of common shareholders’ equity, perpetual preferred shareholders’ equity with noncumulative dividends, retained earnings, and minority interests in the equity accounts of consolidated subsidiaries.


Tier 2 capital
A regulatory definition of bank capital. Tier 2 capital consists of subordinated debt, intermediate-term preferred stock, cumulative and long-term preferred stock, and a portion of the bank’s allowance for loan and lease losses.


TIGRS
A proprietary name for a zero coupon Treasury security created from a coupon-bearing Treasury security.


Time bands
See buckets.


Time deposit
A deposit with a specific maturity. Usually, but not always, a certificate of deposit.


Time draft
A draft that is payable on a future date.


Time note
A name used to describe a promissory note used for closed-end transactions that do not require any principal to be repaid until the maturity of the note. Interest may or may not be due periodically prior to maturity. Time notes are usually for periods of time no greater than one year.


Time value
The portion of an option’s value imputed to the possibility that the price of the underlying will move in the option holder’s favor during the time remaining before the option expires.


Times interest earned
See interest-coverage ratio.


TIPS
See Treasury inflation-protected securities.


Title insurance
An insurance policy that insures that the ownership of a parcel or parcels of real property and the lien priority of secured creditors with an interest in that property is as the title insurance policy states. The insured party protected by the title insurance policy may be the property owner, in which case the policy is called a owner’s policy, or the lender, in which case the policy is called a lender’s policy.


Title insurance commitment
A preliminary report prepared by a title insurance company and submitted to a potential secured party prior to a loan closing. The commitment shows the information and conditions that will appear on the final title insurance policy unless changes are made in the chain of title or in the outstanding liens prior to the issuance of the final policy.


Title opinion
A document prepared by an attorney that states ownership and a brief report of lien priority for a designated parcel of real property. The opinion is usually given in a letter written on the attorney’s letterhead stationary. It includes the date and time of the record investigation. Also called attorney’s certificate of title or certificate of title.


Title search
A report prepared by a title insurance company that indicates the ownership and outstanding liens for a designated parcel or parcels of real property. Even though a title search is prepared by a title insurance company, it does not offer any insurance protection. Also called ownership and encumbrance reports.


Toggle tranche
See jump Z tranche.


Tombstone
The informal name for a published notice listing the major participants in a syndicated loan or newly issued security.


Tort
A legal term for a wrongful act that results in an injury or damages to another person or entity that is not contractual in nature. See commercial tort claim.


Total return analysis
A methodology for calculating an investor's return from an investment. In total return analysis, the investor's returns from interest income paid on the invested principal plus interest income earned from the successive reinvestment of previously earned interest on that investment is combined with projected capital gains or losses. Total return differs from yield-to-maturity first because it can include gains or losses from sales prior to maturity and second because it permits the assumption of a reinvestment rate different from the yield earned on the underlying principal.


Total return swaps
A type of credit derivative instrument. Swap contracts in which the protection buyer sells the total return from a particular reference asset such as a corporate loan or bond. In exchange, the protection buyer receives a rate of interest such as LIBOR. Alternatively, the protection buyer may agree to receive the total return from a different reference asset. (In the first case, the protection buyer has reduced credit risk by taking a rate such as LIBOR and giving up the cash flow from a reference asset with credit risk. In the second case, the protection buyer is diversifying credit risk by exchanging the risk from one obligor for the risk for another obligor.) Note that in a total return swap, the support seller is guaranteeing not just against default by the reference obligor but also against the deterioration in the credit quality of the reference obligor even if there is no default. "Total return" includes interest payments and changes in the market value of the reference asset. As a result, the total return of a credit asset can be affected by various factors, some of which may be quite extraneous to the asset in question, such as interest rate movements, exchange rate fluctuations etc. Also known as a total rate of return swap or TROR swap.


Total risk-based capital
A regulatory definition of bank capital. The sum of tier 1 plus tier 2 capital.


TRACE
Trade Reporting and Compliance Engine. A public reporting service operated by NASD that provides real time price information for over-the-counter trades of eligible corporate bonds.


Trade credit
Credit granted by a supplier to a customer to finance the customer’s purchase of goods or services from the supplier.


Trade date
The day on which a buyer and seller agree upon a transaction.


Trade letter of credit
An obligation issued by a bank on behalf of a bank customer to a third party. A commercial or trade letter of credit is a bank promise to pay the third party for the purchase of goods by the bank’s customer. If the bank’s obligation to pay is not immediate, the transaction can later give rise to a banker’s acceptance. See letter of credit and banker's acceptance. Also called commercial letter of credit.


Trade name
Name used by a proprietorship, partnership, or corporation to conduct business that is different from the legal name of the proprietorship, partnership, or corporation.


Trade receivables
Also known as accounts receivable - trade. Amounts due from the sale of goods or service on credit that are not evidenced by promissory notes.


Trading
(1) The activity of buying and selling financial instruments or commodities for profit. Individuals or entities may engage in trading either strictly on their own behalf or for current or future transactions with customers. Trading profits may come from market price changes but may also come from the spreads between bid and asked prices or from customer markups. Trading is distinct from investing, although trading activities are not always easy to distinguish from investing activities. In trading, the profit goal is almost always short term. Unlike trading, investing is generally longer term and may even include the intent to hold the instrument to maturity. A common misconception is that trading activities are speculative while investing activities are not. Trading may indeed include highly speculative transactions. However, trading may also include relatively low-risk transactions such as matched trading or arbitrage. Like investing, trading may involve either cash or derivative instruments. Trading transactions may involve cash and/or futures positions.

(2) One of three defined categories established in FAS 115 for the classification of financial instruments held as assets on the books of an investor. Trading securities are those owned by investors engaged in trading activities including short-term speculation. Under FAS 115, trading assets must be reported at their market values. FAS 115 also includes provisions that restrict investors’ ability to transfer assets from the trading category to available-for-sale (AFS ) or held-to-maturity (HTM). Also see available-for-sale, FAS 115 and held-to-maturity.


Trading as (T/A)
Designation, usually following a name, indicating that a name used by a business is not the legal name of the entity doing business but is an assumed name or trade name instead.


TRAN
See tax and revenue anticipation notes. Also see tax anticipation notes and bond anticipation note.


Tranche
A segment or tier within a loan or security. Also known as a class. For example, collateralized mortgage obligations (CMOs) are securities for which the cash flows are segregated into tranches and sold separately. Each tranche is a separate security with its own maturity date and interest rate. CMOs may have over a hundred tranches or classes. Tranche is the French word for slice. Tranches are used to reallocate principal and interest cash flows so that some classes have lower risk while some have higher risk. See waterfall.


Transaction risk
One of nine risks defined by the Office of the Comptroller of the Currency. The risk to earnings or capital arising from problems with service or product delivery. The Federal Reserve and most banks refer to this risk as operations or operational risk.


Transit item
A check deposited and processed for collection that is drawn on another bank.


Transit routing number
A nine-digit number contained in the MICR line of each check. The routing number identifies the paying bank.


Transition asset
An off-balance sheet asset created under FAS 87 rules when pension plan assets exceed the projected benefit obligation (PBO) at the date that FAS 87 rules are implemented. The amount of the off-balance sheet asset is the amount of the excess. This asset is amortized - usually over the projected remaining service lives for employees expected to receive benefits. The amortization reduces the reported benefit expense of the sponsoring firm. The unamortized remaining balance of the transition asset is disclosed in a footnote to the financial statements as unrecognized initial net gain.


Transition obligation
An off-balance sheet liability created under FAS 87 rules when the PBO exceeds the amount of pension plan assets as of the date that FAS 87 rules are implemented. The amount of the off-balance sheet liability is the amount of the shortfall. This liability is amortized - usually over the projected remaining service lives for the employees expected to receive benefits. The amortization increases the reported benefit expense of the sponsoring firm. The unamortized remaining balance of the transition obligation is disclosed in a footnote to the financial statements as unrecognized initial net loss.


Treasuries
An informal name for securities issued by the United States Department of the Treasury.


Treasury bills
Short-term obligations issued by the U.S. Treasury. Bills are issued for maturities of one year or less. They do not pay interest but are issued on a discount basis instead.


Treasury bonds
Long-term obligations issued by the U.S. Treasury. Bonds are issued for initial maturities greater than ten years.


Treasury inflation-protected securities (TIPS)
Securities issued by the U.S. Treasury that provide inflation protection to investors. These securities have a fixed coupon rate and maturity date. However the interest payment is based on a principal amount that is adjusted semiannually to reflect changes in the Consumer Price Index (CPI).


Treasury notes
Medium-term obligations issued by the U.S. Treasury. Notes are issued for initial maturities from over one year to ten years.


Treasury stock
The name for shares of a corporation's stock that were issued and then subsequently repurchased by the corporation.


Triple net
An expression used to describe real estate leases that require utilities, insurance, and taxes to be paid by tenants.


Triple tax exempt
A phrase used to refer to municipal securities that are exempt from federal, state, and local income taxes.


True consignment
A transaction in which a person delivers goods to a merchant for the purpose of sale, and the merchant deals in goods of that type under a name other than that of the person delivering the goods.


True lease
A legal term for a transaction that is intended by the parties to be an actual lease of personal property rather than a conditional sale.


True yield
A seldom-used term meaning the simple interest yield for an investment maturing in one year or less. In calculating true yield, the actual number of days in the year (365) is divided by the actual number of days that the investment income is earned.


Truth-in-Lending Act
A Federal statute that governs a number of practices related to bank loans - especially, but not only, consumer loans. The Federal Reserve Board of Governors has adopted Regulation Z to implement this statute. The regulation has specific requirements giving some borrowers the right to rescind certain loans and very specific requirements about how banks must disclose rescission rights. The regulation also includes very detailed requirements for calculating and disclosing annual percentage rates for many loans. See annual percentage rate and rescission.


Turnover or turns
Terms used to describe the number of operating cycles in a defined period of time or the length of each specific operating cycle. Typical turnover cycles are: the rate at which accounts receivable converts to cash, the rate at which inventory converts to receivables or cash, the rate at which accounts payable are paid, and the number of times in a year inventory can be said to be sold and replaced. For example, if a firm's average inventory level is equivalent to one quarter of its annual sales, it can be said that inventory turns four times a year. (See days inventory, days payables and days receivables for definitions of other common measurements of turnover.) While turnover concepts are most often applied to elements of the working capital conversion cycle, there are other applications. For example, asset turnover is the ratio of net sales divided by total assets.


12b-1 fee
A type of fee charged to investors in some mutual funds. In theory, the fee is supposed to reimburse the sponsor for sales, distribution, or shareholder liaison expenses. In reality, however, it is another type of administrative or management fee. See load.


Twist risk
See yield curve risk.


Type I securities
A category of investment securities defined by the Office of the Comptroller of the Currency (OCC) (12 CFR 1). A Type I security is any one of the following:

(1) Obligations of the U.S. government.

(2) Obligations issued, insured or guaranteed by a department or an agency of the U.S. government if the obligation, insurance, or guarantee commits the full faith and credit of the United States for the repayment of the obligation.

(3) Obligations issued by a department or agency of the United States or an agency or political subdivision of a State of the United States that represent an interest in a loan or in a pool of loans made to third parties,if the full faith and credit of the United States has been validly pledged for the full and timely payment of interest on, and principal of, the loans in the event of nonpayment by the third party obligors.

(4) General obligations of a State of the United States or of any political subdivision.

(5) Obligations authorized under 12 USC 24 (Seventh) as permissible for a national bank to deal in, underwrite, purchase, and sell for the bank’s own account, including qualified Canadian government obligations.

(6) Other securities that the OCC determines to be eligible as Type I securities under 12 USC 24 (seventh).


Type II securities
A category of investment securities defined by the Office of the Comptroller of the Currency (OCC) (12 CFR 1). A Type II security is any one of the following:

(1) Obligations issued by a State or a political subdivision or an agency of a state for housing, university, or dormitory purposes.

(2) Obligations of international and multilateral development banks and organizations listed in 12 USC 24 (Seventh).

(3) Other obligations listed in 12 USC 24 (Seventh) as permissible for a bank to deal in, underwrite, purchase, and sell for the bank’s own account, subject to a limitation per obligor of 10 percent of the bank’s capital and surplus.

(4) Other securities that the OCC determines to be eligible as Type II securities under 12 USC 24 (Seventh).


Type III securities
A category of investment securities defined by the Office of the Comptroller of the Currency (OCC) (12 CFR 1). All investment securities that do not qualify as Type I, II, IV, or V. For example, obligations of corporations and municipal revenue securities other than those defined as Type II.


Type IV securities
A category of investment securities defined by the Office of the Comptroller of the Currency (OCC) (12 CFR 1). This is a category added in the 1996 amendments. A Type IV security is any one of the following:

(1) A small business-related security as defined in section 3(a)(53)(A) of the Securities Exchange Act of 1934,15 USC 78c(a)(53)(A), that is rated investment grade or is that is the credit equivalent of investment grade and that is fully secured by interests in a pool of loans to numerous obligors.

(2) A commercial mortgage-related security that is offered or sold pursuant to section 4(5) of the Securities Act of 1933 that is rated investment grade or that is the credit equivalent of investment grade.

(3) A commercial mortgage-related security as described in section 3(a)(41) of the Securities Exchange Act of 1934, 15 USC 78c(a)(41), that is rated investment grade in one of the two highest investment grade rating categories, that represents ownership of a promissory note or certificate of interest of participation that is directly secured by a first lien on one or more parcels of real estate upon which one or more commercial structures are located, and that is fully secured by interests in a pool of loans to numerous obligors.

(4) A residential mortgage-related security that is offered and sold pursuant to section 4(5) of the Securities Act of 1933, 15 USC 77d(5), that is rated investment grade or is the credit equivalent of investment grade.

(5) A residential mortgage-related security as described in section 3(a)(41) of the Securities Exchange Act of 1934,15 USC 78c(a)(41), that is rated investment grade in one of the two highest investment grade rating categories and that does not other wise qualify as a Type I security.

See investment grade.


Type V securities
A category of investment securities defined by the Office of the Comptroller of the Currency (OCC) (12 CFR 1). This is a category added in the 1996 amendments. A Type V security is a security that meets the following four requirements:

(1) Rated investment grade;

(2) Marketable;

(3) Not a Type IV security;

(4) Fully secured by interests in a pool of loans to numerous obligors and in which a national bank could invest directly.