Confused about the bank meltdown? Here’s how to speak Wall Street
Wall Street can seem bewildering, given its sheer amount of jargon, banking terms, and acronyms.
But headlines this week, from the collapse of Silicon Valley Bank to Credit Suisse’s need for a lifeline to instability at First Republic, have made the business of finance a national concern.
So when you hear the FDIC is taking over, a Treasury portfolio is sinking or a bank was backstopped and bailed out, what exactly does that mean?
Here’s a guide to all the key terms you’ve been hearing.
It’s an acronym for the Federal Deposit Insurance Corporation, an independent government agency that protects depositors in banks. It’s one of the main names as banking failures play out because it can step in and make sure the institutions are operating properly.
When a bank fails, the standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.
Providing financial support to an institution that would otherwise collapse. Bailouts are associated with government intervention, as it so famously did during the 2008 financial crisis.
It’s important to note that though a government dispatched a rescue mission for SVB and First Republic, they were not bailed out by it.
How easily a company or bank can turn an asset to cash without losing a ton of its value. Liquidity can be used to gauge the ability to pay off short-term loans or other bills. People feel comfortable in liquid markets because it’s generally fast and easy to buy and sell.
The most “liquid” asset, as you can probably guess, is cash.
Deposits are cash you put into your bank account, and withdrawals are money that’s taken out. A bank run is when a rush of clients withdraw money all at once, often due to rumor or panic.
If a bank has a ratio above 100% (like First Republic), then it loans out more money than it has deposits. That’s not a good situation to be in.
Investments backed by the US government – and known to be one of the safest ones out there. They include Treasury Bills, Treasury Bonds and Treasury Notes. However, Treasuries are sensitive to broader economic conditions like inflation and changing interest rates.
The value of SVB’s Treasuries portfolio sank as interest rates rose.
Anything that could be used to generate cash flow. That could be tangible assets like stocks and buildings, or intangible assets like brand
Inflow is the money going into a business – think from product sales and from smart investments. Outflow is cash leaving the business.
Technically, it’s alternative steps a business takes to meet its goals. That could include strategies like diversifying and product development.
But what does it really mean? The company might be thinking about putting itself up for sale.
A rapid and mass selling of a stock based on an upcoming fear – like rumors of a bank collapse.
Cash or other rewards companies gift to their shareholders.
An action that lets a company keep surviving. For example, Credit Suisse just got a $54 billion lifeline from the Swiss central bank, though that hasn’t entirely quelled investor fears yet. Another bank that benefited from a lifeline is First Republic, when 11 banks deposited $30 billion.
This term is used widely in the financial sector to describe a last-resort financial protection, almost like an insurance policy. It’s a secondary source of funds through either credit support or guaranteed payment for unsubscribed shares.
A system used by the FDIC that lets it take action on a bank crisis that could drag down the entire sector with it. Though it’s pretty rare to enact it, the FDIC used this exception to take over SVB and Signature Bank last week.
This is the Fed’s main way to directly lend money to banks and provide them more liquidity and stability. The loans last up to 90 days. Many banks are utilizing this tool right now because the Fed made it easier to borrow from the discount window in the wake of SVB to avoid further bank runs.