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TERMS IN CONTEXT

Credit & banking glossary

Credit, banking and AI terms with practical examples, primary sources and related research.

41 of 41 definitions

Definitions reviewed . Examples are hypothetical, not current rates or product offers.

All matching terms
Advance rate#
Banking partnerships

The percentage of eligible collateral value a lender will finance. It is not the interest rate. Lower advance rates require the borrower to contribute more funding or reduce its outstanding borrowing.

Hypothetical example. A hypothetical advance-rate reduction from 80% to 70% on $10 million of eligible collateral lowers supported borrowing by $1 million.

Compare: Borrowing base

Adverse action#
Underwriting

Under Regulation B, specified unfavorable credit decisions, including many denials, account terminations or unfavorable changes in terms. Exceptions and notification rules depend on the facts; not every declined card transaction is adverse action.

Hypothetical example. Denying a hypothetical completed credit application because verified income is insufficient can require a notice explaining the actual principal reasons.

Compare: Explainability

Annual percentage rate (APR)#
Underwriting

An annualized measure of borrowing cost. For installment loans it includes interest and certain required charges; a credit-card purchase APR does not include every fee. Compare products using the applicable disclosure rules.

Hypothetical example. For a hypothetical installment loan, an origination fee can make the disclosed APR higher than the stated interest rate.

Compare: Annual percentage yield (APY) · Deferred interest

Annual percentage yield (APY)#
Rates & funding

An annualized measure of deposit interest that incorporates compounding under the applicable disclosure assumptions. It describes interest earned, whereas APR describes borrowing cost; account fees can reduce a depositor’s net return.

Hypothetical example. At an unchanged hypothetical 5% APY, $1,000 held for a year earns $50 in interest, assuming no withdrawals or other changes.

Compare: Annual percentage rate (APR)

Basis point#
Rates & funding

One hundredth of a percentage point. A move from 5.00% to 5.25% is a rise of 25 basis points, or 0.25 percentage points.

Hypothetical example. A hypothetical rate decline from 6.25% to 5.75% is 50 basis points, not 50%.

Compare: Credit spread

Borrowing base#
Banking partnerships

The collateral-supported borrowing amount calculated under a financing agreement. Eligibility exclusions, advance rates, reserves and concentration limits affect the result. Remaining availability also depends on the commitment limit and outstanding borrowings.

Hypothetical example. With hypothetical eligible receivables of $10 million, an 80% advance and a $500,000 reserve, the borrowing base is $7.5 million before other limits.

Compare: Advance rate · Warehouse facility

CAMELS#
Supervision & capital

A supervisory framework covering capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risk. Components and the composite are rated from 1 to 5, with 1 strongest. Institution-specific ratings are confidential supervisory information.

Hypothetical example. A hypothetical bank with strong reported capital can still have serious weaknesses in management or liquidity; public capital ratios do not reveal its confidential CAMELS rating.

Compare: Common equity tier 1 (CET1) · MRA / MRIA

Cash-flow underwriting#
Underwriting

Assessing repayment capacity using inflows, outflows and balances, often from account-transaction data. Income stability, recurring obligations, coverage gaps and data quality matter; observed deposits are not automatically recurring earned income.

Hypothetical example. A hypothetical model separates monthly payroll from transfers between the applicant’s own accounts before estimating available cash.

Compare: Residual income · Debt-to-income ratio (DTI)

Charge-off#
Credit performance

An accounting reduction for debt judged uncollectible. Gross charge-offs are amounts written off; net charge-offs subtract recoveries. A charge-off does not by itself cancel the borrower’s legal obligation.

Hypothetical example. Hypothetical gross charge-offs of $100,000 and recoveries of $20,000 produce $80,000 in net charge-offs.

Compare: Chargeback · Delinquency

Chargeback#
Credit performance

A card-payment reversal initiated through the card dispute process, potentially returning a transaction to the merchant’s acquiring bank. Network rules, evidence and dispute rights determine the outcome; a chargeback is different from a lender’s credit-loss charge-off.

Hypothetical example. A hypothetical $500 non-delivery dispute may create a $500 chargeback exposure for the merchant even when the cardholder keeps paying their bill.

Compare: Charge-off

Common equity tier 1 (CET1)#
Supervision & capital

A regulatory capital measure built principally from qualifying common equity and retained earnings, with required adjustments and deductions. The CET1 ratio divides this capital by risk-weighted assets; it is not the same as cash available to meet withdrawals.

Hypothetical example. Hypothetical CET1 capital of $1 billion divided by $10 billion of risk-weighted assets gives a 10% CET1 ratio. This is not a statement of an applicable minimum.

Compare: Risk-weighted assets (RWA) · Liquidity

Covenant#
Banking partnerships

A promise or restriction in a financing agreement, such as a reporting obligation or minimum financial ratio. Breach can restrict borrowing or trigger remedies under the contract; waivers and cure rights vary.

Hypothetical example. A hypothetical facility requires at least $5 million of unrestricted cash. Falling below that level may trigger contractual action even when loan payments remain current.

Compare: Default

Credit spread#
Rates & funding

The yield difference between a credit-risky instrument and a comparable benchmark. Besides expected credit losses, the spread can reflect liquidity and risk compensation; maturity and other terms must be comparable.

Hypothetical example. A hypothetical bond yielding 7% against a comparable 4.5% Treasury has a 250-basis-point spread.

Compare: Basis point · Yield curve

Credit utilization#
Underwriting

The share of available revolving credit being used, measured on one account or across accounts. Reported balances and limits determine the calculation; a change can reflect borrowing, repayment or a lender changing the limit.

Hypothetical example. A hypothetical $2,000 reported balance on a $10,000 card limit gives 20% utilization. Reducing the limit to $5,000 makes it 40% without new spending.

Compare: Debt-to-income ratio (DTI)

Current expected credit losses (CECL)#
Credit performance

An accounting approach for estimating expected credit losses over the remaining contractual life of covered assets, considering prepayments. Estimates use historical experience, current conditions, and reasonable and supportable forecasts.

Hypothetical example. A hypothetical $10 million loan portfolio with estimated remaining lifetime losses of $300,000 would have a $300,000 allowance, before other applicable adjustments.

Compare: Charge-off · Vintage / cohort

Debt-to-income ratio (DTI)#
Underwriting

Monthly debt payments divided by gross monthly income. For example, $2,000 of debt payments and $6,000 of gross income give a DTI of about 33%. DTI does not by itself capture all living expenses or income volatility.

Hypothetical example. With $1,800 in monthly debt payments and $6,000 in gross monthly income, hypothetical DTI is 30%; household living costs still matter.

Compare: Residual income

Default#
Credit performance

Failure to satisfy a loan’s contractual obligations. Payment delinquency can lead to default, but contracts and applicable law define the trigger; a covenant breach can also be a default without a missed payment.

Hypothetical example. A hypothetical loan agreement permits a cure period for a reporting breach. Whether and when default occurs depends on that agreement, not a universal days-past-due threshold.

Compare: Delinquency · Covenant

Deferred interest#
Underwriting

A promotion that accrues interest but waives it if the consumer satisfies the offer’s conditions, usually paying the promotional balance in full by a deadline. Failing the condition can trigger interest back to the purchase date.

Hypothetical example. A hypothetical “no interest if paid in full in 12 months” offer can charge accrued interest if a balance remains at expiry. A true 0% introductory APR works differently.

Compare: Annual percentage rate (APR)

Delinquency#
Credit performance

A missed contractual payment, usually measured by days past due. A portfolio delinquency rate depends on its bucket and denominator; the Federal Reserve’s bank series includes loans at least 30 days past due and nonaccrual loans.

Hypothetical example. If 20 of 1,000 accounts are 30–59 days past due, that hypothetical account-based bucket rate is 2%; a balance-based rate may differ.

Compare: Default · Charge-off

Deposit beta#
Rates & funding

The change in a deposit interest rate divided by the change in a reference rate over the same period. If the reference rate rises 1 percentage point and the deposit rate rises 0.4 points, the beta is 40%. The time window and deposit mix affect the result.

Hypothetical example. If a reference rate falls 100 basis points and the measured deposit rate falls 30, the hypothetical downward beta is 30%.

Compare: Prime rate

Explainability#
AI & fraud

The ability to describe mechanisms behind an AI system’s operation. A useful explanation depends on its audience and purpose; an explanation of a score is not automatically an accurate, legally sufficient adverse-action notice.

Hypothetical example. A hypothetical lender checks that a stated denial reason reflects the applicant’s actual decision factors rather than a generic list of model inputs.

Compare: Adverse action · Model validation

False positive#
AI & fraud

A positive model or rule signal when the target condition is absent—for example, flagging a legitimate transaction as fraud. The false-positive rate uses actual negatives as its denominator; the share of alerts that are wrong is a different metric.

Hypothetical example. If 20 of 1,000 legitimate transactions are flagged, the hypothetical false-positive rate is 2%. That does not mean 2% of all alerts are wrong.

Compare: Synthetic identity · Model validation

Job Openings and Labor Turnover Survey (JOLTS)#
Rates & funding

A monthly Bureau of Labor Statistics survey of U.S. nonfarm employers that measures unfilled jobs, hiring and departures. Job openings are a snapshot on the last business day of the month; hires and separations count activity throughout the month. Quits are voluntary departures excluding retirements and transfers, while layoffs and discharges are employer-initiated departures. These survey estimates are subject to sampling error and revisions.

Hypothetical example. If employers hypothetically hire 5 million people and record 4.8 million separations in a month, JOLTS implies a net gain of 200,000 jobs; that need not equal the separate payroll survey’s reported gain because the surveys use different methods and reference periods.

Liquidity#
Rates & funding

The ability to meet cash needs when due without unacceptable losses. Funding liquidity concerns obtaining cash; market liquidity concerns selling an asset promptly at a reasonable price. A solvent institution can still face a cash shortage.

Hypothetical example. A hypothetical lender may hold valuable five-year loans but need accessible cash today to meet deposit withdrawals.

Compare: Common equity tier 1 (CET1) · Borrowing base

Military annual percentage rate (MAPR)#
Underwriting

The Military Lending Act’s measure of credit cost for covered transactions. It can include credit insurance, certain add-on products and fees beyond the ordinary APR. Product-specific exclusions and rules matter.

Hypothetical example. A hypothetical loan below 36% ordinary APR could exceed 36% MAPR after covered fees are included.

Compare: Annual percentage rate (APR)

Model drift#
AI & fraud

Changes over time in a model’s inputs, the relationship between inputs and outcomes, or observed performance. Data drift describes a changing input population; it may warrant investigation even before performance deterioration is measurable.

Hypothetical example. A hypothetical lender’s applicant mix changes after a new merchant partnership. Monitoring checks both the input shift and subsequent repayment performance.

Compare: Model validation · False positive

Model validation#
AI & fraud

Evaluation of whether a model is conceptually sound, implemented appropriately and performing adequately for its intended use. Testing and challenge should reflect the model’s risks; validation does not guarantee future accuracy or eliminate the need for monitoring.

Hypothetical example. A hypothetical validator tests repayment predictions on later loan cohorts and checks whether production code reproduces the approved model.

Compare: Model drift · Explainability

MRA / MRIA#
Supervision & capital

Matter requiring attention (MRA) and matter requiring immediate attention (MRIA) are supervisory findings identifying deficiencies for remediation. Federal Reserve MRIAs signal greater urgency. Agency-specific standards and communication rules apply; these findings are distinct from formal enforcement orders.

Hypothetical example. A hypothetical examiner identifies a material reconciliation weakness and requests corrective action. The finding’s severity and governing agency framework determine its classification.

Compare: Consent order · Supervisory guidance

Prime rate#
Rates & funding

A reference lending rate set by individual banks and used to price some loans and variable-rate credit cards. The Federal Reserve influences market conditions but does not directly set banks’ prime rates.

Hypothetical example. If a hypothetical card charges prime plus 15 percentage points and prime is 7%, its rate is 22%, subject to the agreement.

Compare: Secured Overnight Financing Rate (SOFR) · Yield curve

Residual income#
Underwriting

Income remaining after specified obligations and expenses. The exact deductions depend on the framework: Regulation Z’s mortgage test deducts covered debt obligations, while broader household affordability analysis can also deduct living costs.

Hypothetical example. In a hypothetical household budget, $4,000 of take-home income less $1,500 debt payments and $2,000 living costs leaves $500. This is a budget example, not a regulatory calculation.

Compare: Debt-to-income ratio (DTI)

Risk-adjusted return on capital (RAROC)#
Supervision & capital

A measure that compares risk-adjusted earnings with capital allocated to the activity. Institutions differ in their treatment of expected losses, expenses and capital, so comparisons require consistent definitions.

Hypothetical example. Hypothetical annual risk-adjusted earnings of $2 million divided by $10 million in allocated capital produce a 20% RAROC.

Compare: Common equity tier 1 (CET1)

Risk-weighted assets (RWA)#
Supervision & capital

The risk-adjusted exposure measure used as the denominator of risk-based capital ratios. Regulatory methods assign or calculate risk weights and can include off-balance-sheet exposures; RWA is not simply total accounting assets.

Hypothetical example. A hypothetical $100 loan exposure assigned a 75% risk weight contributes $75 to RWA before other applicable adjustments.

Compare: Common equity tier 1 (CET1)

Roll rate#
Credit performance

The share of accounts or balances that move from one payment-status bucket to another over a defined interval. A move back toward current is a cure; account-based and balance-based rates answer different questions.

Hypothetical example. If 15 of 100 accounts that started 30–59 days past due end the month 60–89 days past due, the hypothetical roll rate is 15%.

Compare: Delinquency · Vintage / cohort

Secured Overnight Financing Rate (SOFR)#
Rates & funding

A transaction-based measure of the cost of borrowing cash overnight against U.S. Treasury collateral. Overnight SOFR, compounded averages, and forward-looking term rates are different measures; a loan’s contract determines which applies.

Hypothetical example. For a hypothetical loan priced at overnight SOFR plus 3 percentage points, a 4% SOFR observation gives a 7% rate before contractual averaging or adjustments.

Compare: Prime rate

Supervisory guidance#
Supervision & capital

An agency’s explanation of supervisory views or sound practices. Unlike a statute or binding regulation, guidance does not itself have the force and effect of law. Violations of law and unsafe or unsound practices remain separately actionable.

Hypothetical example. A hypothetical handbook describes a useful control. The example is not automatically a binding legal requirement merely because it appears in supervisory guidance.

Compare: Consent order · MRA / MRIA

Synthetic identity#
AI & fraud

A fabricated person or entity assembled from combinations of identifying information. Synthetic identity fraud uses that identity for dishonest gain; it differs from simply taking over an existing real person’s account.

Hypothetical example. A hypothetical application combines a real identifier with invented personal details. A risk score alone does not prove that the identity is fraudulent.

Compare: False positive

Vintage / cohort#
Credit performance

A group of loans originated during the same period, tracked at comparable ages. Vintage analysis helps distinguish changing credit performance from portfolio growth and seasoning; product and borrower mix still affect comparisons.

Hypothetical example. Compare hypothetical January and February originations at six months on book, rather than comparing both on the same calendar date.

Compare: Roll rate

Warehouse facility#
Banking partnerships

A financing arrangement that funds a lender’s pool of loans or receivables before sale, securitization or other repayment. Eligible collateral, advance limits and contract terms constrain usable funding; the headline commitment is not necessarily immediately available cash.

Hypothetical example. A hypothetical lender draws $8 million against $10 million of eligible loans at an 80% advance rate, subject to other facility limits.

Compare: Borrowing base · Advance rate

Yield curve#
Rates & funding

A comparison of yields across maturities for comparable debt, such as U.S. Treasuries. Its shape shows how short- and long-term borrowing rates differ; it is not a consumer-loan APR.

Hypothetical example. Hypothetical 2-year and 10-year yields of 4.5% and 4.0% give a 10Y-minus-2Y spread of −50 basis points.

Compare: Prime rate · Annual percentage rate (APR)