Confused by bank failure? That’s how to talk on Wall Street

NY
CNN
—

Wall Street can be confusing given the sheer amount of jargon, banking terms and acronyms.

But this week’s headlines are out collapse of the Silicon Valley bank To Credit Suisse needs a lifeline to instability in First Republicmade the financial business a national concern.

So, when you hear that the FDIC is taking over, the Treasury portfolio is sinking, or the bank has been bailed out and bailed out, what exactly does that mean?

Here’s a guide to all the key terms you’ve heard.

It is an abbreviation for the Federal Deposit Insurance Corporation, an independent government agency that protects depositors in banks. It is one of the main names for bank failures because it can step in and make sure the institutions are working properly.

In the event of a bank failure, the standard sum insured is $250,000 per depositor in an insured bank for each category of account ownership.

Providing financial support to an institution that would otherwise collapse. The bailout is linked to government intervention, as was the case during the 2008 financial crisis.

It is important to note that although the government sent a rescue mission for the SVB and the First Republic, it did not save them.

How easily a company or bank can turn an asset into cash without losing a ton of value. Liquidity can be used to assess the ability to repay short-term loans or other bills. People feel comfortable in liquid markets because it is generally quick and easy to buy and sell.

The most “liquid” asset, you guessed it, is cash.

Deposits are money you deposit into your bank account, while withdrawals are money withdrawn. A bank run is when customers withdraw all their money at once, often due to rumors or panic.

If the bank has a ratio higher than 100% (for example, in the First Republic), then it gives out more money than it has deposits. This is not a very good situation.

US government-backed investments are considered among the safest. These include treasury bills, treasury bonds and treasury bonds. However, Treasuries are sensitive to broader economic conditions such as inflation and changes in interest rates.

The value of the SVB Treasury portfolio fell as interest rates rose.

Anything that can be used to generate cash flow. These can be tangible assets such as stocks and buildings, or intangible assets such as a brand.

Inflow is money that goes into the business – think about product sales and smart investments. An outflow is an outflow of cash from a business.

Technically, these are alternative steps taken by businesses to achieve their goals. This may include strategies such as diversification and product development.

But what does this really mean? The company may consider putting itself up for sale.

A quick and massive sale of shares based on looming fear, like rumors of a bank failure.

Cash or other rewards that companies give to their shareholders.

Action that allows the company to continue to survive. For example, Credit Suisse just received a $54 billion lifeline from the Swiss central bank, although that has yet to completely allay investor fears. Another bank that benefited from the lifeline is First Republic, when 11 banks deposited $30 billion.

The term is widely used in the financial sector to describe extreme financial protection, almost like an insurance policy. This is a secondary source of funds, either through credit support or through guaranteed payment of shares without a subscription.

A system used by the FDIC that allows it to take action in the event of a banking crisis that could engulf the entire sector. Although it’s fairly rare to enforce this, the FDIC used the exemption to take over SVB and Signature Bank last week.

This is the Fed’s main way of lending money directly to banks and providing them with more liquidity and stability. Loans last up to 90 days. Many banks are using this tool right now because the Fed has made it easier to borrow from the discount window after the SVB to avoid further bank runs.