Liar loans are a term that refers to loans or mortgages that were granted with little or no request for qualification documentation, such as proof of income. On certain low-documentation loan programs, such as stated income/stated asset (SISA) loans, income and assets are simply stated on the loan application. Then there are still other loan programs known as no income/no asset (NINA) loans, where the applicant essentially does not have to provide any proof of eligibility. These types of loans opened the door for fraudulent lending practices, which ultimately bankrupted several mortgage companies during the 2008 financial crisis. Continue reading...
IRS Link to Form — Found Here Form 8891 was previously used by individuals with retirement plans held in Canada when they were living in America, each time they took distributions. The process proved to be cumbersome for many good-natured Canadians, and caused the IRS a lot of trouble as well. This form has been retired in favor of an acknowledgement on the IRS Form 1040. Form 8891 is no longer used, which came as a relief to many Canadian-Americans who had retirement plans from work they did in Canada. Certain filing requirements still exist, such as a new form replacing the FBAR, for foreign bank accounts, now called the FinCEN Form 114. Continue reading...
In contrast to the term “home owner,” home debtor is reserved for those who will seemingly never be able to pay off the mortgage(s) on their home, or who have already defaulted. Most Americans live in homes that they pay on, but are still primarily owned by the bank that loaned them money. Banks have insurance to protect them against mortgage defaults. Home mortgage loans are the primary way that Americans by homes today. Continue reading...
Deposits are cash, checks, and electronic transfers that banking customers put into their personal or corporate bank accounts. Deposits will increase the balance, or pay off a debt, within a bank account. Deposits may not show up on an account balance until they have cleared from the institution or account from which the check is written or the electronic transfer was requested. The types of accounts that can receive bank deposits include but are not limited to checking, savings, and money market accounts. Bank Certificates of Deposit (CDs) can be purchased with an initial deposit that satisfied minimum amount. Deposits are considered liabilities on the balance sheet of the bank, since they are obligated to pay that money out when a customer requests it. Continue reading...
The truest definition of a Bank Draft is a check written with the certification of a customer’s bank. Bank Drafts are checks also known as Bank Checks and Cashier’s Checks. They have already been cleared at the writing institution and they provide an extra endorsement that the payment is good. Regular personal checks do not need to be co-signed or verified before they are used as payment, whether or not there is enough money in an account to cover it. Continue reading...
An investment bank is a financial institution that typically specializes in large, complex transactions, such as underwriting an Initial Public Offering (IPO), mergers and acquisitions, direct investment into start-up firms, or advising large institutional clients on investments/transactions. In short, investment banks help create the bridge between large enterprises and the investor. In that sense, IPOs are one way to accomplish this, but they also help businesses secure financing in other ways, such as through bond issues or derivative products. Continue reading...
When a lending institution offers a Bank Guarantee, they are reducing the risk involved in a transaction by guaranteeing payment to the seller. Bank Guarantees often come into play with deals made internationally, where the participants in the deal prefer to have some assurances before they do business. The guarantee acts as insurance to protect the parties involved in transactions where they are not fully able to assess the strength and reliability of the other, such as when small companies bid for projects or when bids for a job come-in from around the world. Continue reading...
Bank Credit is the amount of loaned capital that an individual or business is capable of getting from a bank at a given time. This amount will be based on a series of evaluative metrics such as the total amount of assets an individual has, home equity, income, liquid net worth, work history, credit rating, and so forth. An individual can only borrow so much at a time, and, using these variables, a banker can essentially estimate how much credit could be extended that a given individual at that time. Continue reading...
Investment banking activity is different than traditional banking. Investment banks often serve as intermediaries that underwrite a new issue of stock and help to distribute it. They also trade in their own accounts, run hedge funds, and generally invest and speculate in ways that most institutions can’t. Investment banks can assist with new issues of stocks and bonds, purchasing large blocks of them to distribute at a premium. Continue reading...
The Foreign Credit Insurance Association protects American businesses from non-payment in international trade deals where goods were sold on credit. The Foreign Credit Insurance Association (FCIA) is a group of insurance companies which underwrite the foreign credit insurance sold by the Export-Import Bank of Washington DC. The Export – Import Bank, also known as the Ex/Im Bank, is an independent government entity that facilitates and encourages some international trade activity of American companies. Continue reading...
A Bank Statement is a report issued to an account holder on a regular basis, such as monthly, which contains the account balance as of the date of the report and usually a history of transactions for the period. A Bank Statement will usually be mailed, either by the postal service or electronically, to a banking customer every month. The statement will represent a summary of the bank’s records for the recent month on a particular account, and will probably show all transactions posted to the account, along with the ending balance of the account as of the date of the mailing. Continue reading...
The Federal Reserve banking system was created in 1913, the same year that income taxes were added to the US Constitution. 12 regional Fed banks were established, each of which plays a role in monitoring and implementing interventions to the flow of money in the economy. The Federal Reserve Bank is a 12-bank system in the United States that plays the role of the country’s central bank. Central banks in other countries are typically part of the government and print the actual currency, but in this case the Fed is independent of the actual US government, and the Treasury Department technically prints the money. Continue reading...
Most people recognize this as a “routing number.” The American Bankers Association (ABA) assigns a number to each banking institution registered with them, for the purposes of electronic transfers; this is commonly known as a routing number, and officially an RTN, or Routing Transit Number. Consumers and bank clients are familiar with this number as the 9-digit number that appears beside their account number on the bottom of their personal checks. Every client with a particular bank will have have the same routing number on their checks. Continue reading...
It is a useful practice to compare the balance reported by the bank and your internal accounting, in the form of a Bank Reconciliation Statement. Bank Reconciliation is the useful practice of comparing the records of the bank and a business's internal accounting for a specific accounting period. Many businesses produce Bank Reconciliation Statements (BRS) on a monthly basis. There may be pending transactions that have not settled yet, such as outstanding checks to vendors, which have shown up on the business’s books but are not represented in the bank account balance. It can be important to identify which transactions have shown up on the bank’s ledger and which ones have not. Continue reading...
Foreign deposits are taken in by international branch locations of US-based banking institutions. Banks are not obligated to pay FDIC premiums on these deposits. Foreign deposits are placed by customers into a US-based bank branch which is located in international locations. Because it is outside of Federal jurisdiction, banks are not subject to the same capital reserve requirements and do not have to pay FDIC insurance on the deposits. Continue reading...
Freddie Mac is a government-sponsored company which purchases mortgages from banks and securitizes them for sales to investment banks or individuals. Freddie Mac is not a government organization, but was established by a congressional mandate in the 1970’s. It’s proper name is the Federal Home Loan Mortgage Corporation (FHLMC). The company’s purpose is to make mortgage debts into marketable securities by purchasing the mortgage risk and cash flow from banks and dividing into tranches which are sold to or through investment banking institutions. The securitized mortgages are known as Collateralized Mortgage Obligations, or CMO’s. Continue reading...
The Federal Reserve System was established by the Federal Reserve Act of 1913, which created a network of reserve banks that could help to prevent economic meltdowns by serving as a regulator and a source of funds. There are 12 regional Federal Reserve Banks which monitor banks in their jurisdiction and make loans when necessary. The Federal Reserve System is sometimes referred to as one bank, but it is in fact a network of 12 banks with 24 branches, overseen by a Board with members nominated by the US Government. Continue reading...
Investment bankers are proficient analysts themselves, but they have subordinate financial analysts that crunch the numbers for them. They are primarily in the business of procuring clients for deals such as IPOs which their investment bank will underwrite. Investment bankers are employees of investment banks whose role is to acquire clients for the bank and to be the liaison between clients and the back office of the investment bank. Continue reading...
The federal funds rate is the overnight rate at which commercial lenders lend excess reserves to other institutions, on an un-collateralized basis. This term is unique to the United States, though other central banks around the world also have an overnight rate. The federal funds rate is a closely watched and crucial rate for determining how easy capital is to access. The lower the fed funds rate, the more accessible the Federal Reserve is trying to make cash - to inspire banks to borrow and lend. The opposite is also true, where the Fed may raise the fed funds rate if an economy is overheating or lending needs to be curbed. Continue reading...
Lifeline accounts are offered by some banks, and are required in some states to be offered by all banks — they give low-income individuals an opportunity to bank without paying fees or observing a minimum balance. This is done in an effort to promote social mobility by giving everyone access to banking services. You are likely to be able to find a bank that offers free checking accounts anyway, but some states have mandated that banks allow for so-called “lifeline accounts,” which have fewer features than other checking accounts but which may be the only banking option available for low-income banking customers. Continue reading...