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Subordinated Debt
In finance, subordinated debt (also known as subordinated loan, subordinated bond, subordinated debenture or junior debt) is debt which ranks after other debts if a company falls into liquidation or bankruptcy. Such debt is referred to as 'subordinate', because the debt providers (the lenders) have subordinate status in relationship to the normal debt. Subordinated debt has a lower priority than other bonds of the issuer in case of liquidation during bankruptcy, and ranks below: the liquidator, government tax authorities and senior debt holders in the hierarchy of creditors. Debt instruments with the lowest seniority are known as subordinated debt instruments. Because subordinated debts are only repayable after other debts have been paid, they are more risky for the lender of the money. The debts may be secured or unsecured. Subordinated loans typically have a lower credit rating, and, therefore, a higher yield than senior debt. A typical example for this would be when a pr ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Finance
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of financial economics bridges the two). Finance activities take place in financial systems at various scopes, thus the field can be roughly divided into personal, corporate, and public finance. In a financial system, assets are bought, sold, or traded as financial instruments, such as currencies, loans, bonds, shares, stocks, options, futures, etc. Assets can also be banked, invested, and insured to maximize value and minimize loss. In practice, risks are always present in any financial action and entities. A broad range of subfields within finance exist due to its wide scope. Asset, money, risk and investment management aim to maximize value and minimize volatility. Financial analysis is viability, stability, and profitability asse ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Collateralized Mortgage Obligation
A collateralized mortgage obligation (CMO) is a type of complex debt security that repackages and directs the payments of principal and interest from a collateral pool to different types and maturities of securities, thereby meeting investor needs. CMOs were first created in 1983 by the investment banks Salomon Brothers and First Boston for the U.S. mortgage liquidity provider Freddie Mac. The Salomon Brothers team was led by Lewis Ranieri and the First Boston team by Laurence D. Fink, although Dexter Senft also later received an industry award for his contribution). Legally, a CMO is a debt security issued by an abstraction—a special purpose entity—and is not a debt owed by the institution creating and operating the entity. The entity is the legal owner of a set of mortgages, called a ''pool''. Investors in a CMO buy bonds issued by the entity, and they receive payments from the income generated by the mortgages according to a defined set of rules. With regard to terminol ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Credit
Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt), but promises either to repay or return those resources (or other materials of equal value) at a later date. In other words, credit is a method of making reciprocity formal, legally enforceable, and extensible to a large group of unrelated people. The resources provided may be financial (e.g. granting a loan), or they may consist of goods or services (e.g. consumer credit). Credit encompasses any form of deferred payment. Credit is extended by a creditor, also known as a lender, to a debtor, also known as a borrower. Etymology The term "credit" was first used in English in the 1520s. The term came "from Middle French crédit (15c.) "belief, trust," from Italian credito, from Latin creditum "a loan, thing entrusted to another," from past ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Structural Subordination
In corporate finance, structural subordination is the concept that a lender to a company will not have access to the assets of the company's subsidiary until after all of the subsidiary's creditors have been paid and the remaining assets have been distributed up to the company as an equity holder. For example, if a lender lends money to a parent company A holding company is a company whose primary business is holding a controlling interest in the securities of other companies. A holding company usually does not produce goods or services itself. Its purpose is to own shares of other companies ..., then that lender is structurally subordinated to a lender who lent money to a subsidiary of the parent. The lender to the subsidiary is structurally senior, and the lender to the parent can only be repaid from the assets of the subsidiary after the lender to the subsidiary has been repaid. References {{reflist Corporate finance ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Perpetual Subordinated Debt
Perpetual subordinated debt is debt (bonds) with no maturity date for the return of principal, never needs to be redeemed by the issuer, and thus pay coupon interest continually until bought back (hence, "perpetual"). Like other subordinated debt, it has claims after senior debt (hence "subordinated") in the event of default. Perpetual subordinated debt is not "straight debt", rather it is close to, or in some cases identical to, preferred shares, paying a fixed-rate coupon similar to preferred shares' fixed-rate dividend. Perpetual debt comes in two types: cumulative and noncumulative. Interest on cumulative perpetual debt accrues if payments are missed. For noncumulative perpetual debt, if payments are missed, they do not accrue and the cash flow is lost.Dictionary of Finance and Investment Terms, p. 529 Noncumulative perpetual debt is almost identical to typical preferred shares (most of which are noncumulative), the only difference being that preferred shares often have the op ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
CAMELS Rating
The CAMELS rating is a supervisory rating system originally developed in the U.S. to classify a bank's overall condition. It is applied to every bank and credit union in the U.S. and is also implemented outside the U.S. by various banking supervisory regulators. The ratings are assigned based on a ratio analysis of the financial statements, combined with on-site examinations made by a designated supervisory regulator. In the U.S. these supervisory regulators include the Federal Reserve, the Office of the Comptroller of the Currency, the National Credit Union Administration, the Farm Credit Administration, and the Federal Deposit Insurance Corporation. Ratings are not released to the public but only to the top management to prevent a possible bank run on an institution which receives a CAMELS rating downgrade. Institutions with deteriorating situations and declining CAMELS ratings are subject to ever increasing supervisory scrutiny. Failed institutions are eventually resolved via ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Banking Regulation
Bank regulation is a form of government regulation which subjects banks to certain requirements, restrictions and guidelines, designed to create market transparency between banking institutions and the individuals and corporations with whom they conduct business, among other things. As regulation focusing on key factors in the financial markets, it forms one of the three components of financial law, the other two being case law and self-regulating market practices. Given the interconnectedness of the banking industry and the reliance that the national (and global) economy hold on banks, it is important for regulatory agencies to maintain control over the standardized practices of these institutions. Another relevant example for the interconnectedness is that the law of financial industries or financial law focuses on the financial (banking), capital, and insurance markets. Supporters of such regulation often base their arguments on the "too big to fail" notion. This holds that ma ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Bank Condition
The CAMELS rating is a supervisory rating system originally developed in the U.S. to classify a bank's overall condition. It is applied to every bank and credit union in the U.S. and is also implemented outside the U.S. by various banking supervisory regulators. The ratings are assigned based on a ratio analysis of the financial statements, combined with on-site examinations made by a designated supervisory regulator. In the U.S. these supervisory regulators include the Federal Reserve, the Office of the Comptroller of the Currency, the National Credit Union Administration, the Farm Credit Administration, and the Federal Deposit Insurance Corporation. Ratings are not released to the public but only to the top management to prevent a possible bank run on an institution which receives a CAMELS rating downgrade. Institutions with deteriorating situations and declining CAMELS ratings are subject to ever increasing supervisory scrutiny. Failed institutions are eventually resolved via ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Basel II
Basel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision. It is now extended and partially superseded by Basel III. The Basel II Accord was published in June 2004. It was a new framework for international banking standards, superseding the Basel I framework, to determine the minimum capital that banks should hold to guard against the financial and operational risks. The regulations aimed to ensure that the more significant the risk a bank is exposed to, the greater the amount of capital the bank needs to hold to safeguard its solvency and overall economic stability. Basel II attempted to accomplish this by establishing risk and capital management requirements to ensure that a bank has adequate capital for the risk the bank exposes itself to through its lending, investment and trading activities. One focus was to maintain sufficient consistency of regulations so to limit competitive ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Tier 2 Capital
Tier 2 capital, or supplementary capital, includes a number of important and legitimate constituents of a bank's capital requirement.By definition of Bank for International Settlements. These forms of banking capital were largely standardized in the Basel I accord, issued by the Basel Committee on Banking Supervision and left untouched by the Basel II accord. National regulators of most countries around the world have implemented these standards in local legislation. In the calculation of regulatory capital, Tier 2 is limited to 100% of Tier 1 capital. Undisclosed reserves Undisclosed reserves are not common, but are accepted by some regulators where a bank has made a profit but the profit has not appeared in normal retained profits or in general reserves of the bank. Undisclosed reserves must be accepted by the bank's supervisory authorities. Many countries do not accept undisclosed reserves as an accounting concept or as a legitimate form of capital. Revaluation reserves A revalua ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Hybrid Security
Hybrid securities are a broad group of securities that combine the characteristics of the two broader groups of securities, debt and equity. Hybrid securities pay a predictable (either fixed or floating) rate of return or dividend until a certain date, at which point the holder has a number of options, including converting the securities into the underlying share. Therefore, unlike with a share of stock (equity), the holder enjoys a predetermined (rather than residual) cash flow, and, unlike with a fixed interest security (debt), the holder enjoys an option to convert the security to the underlying equity. Other common examples include convertible and converting preference shares. A hybrid security is structured differently than fixed-interest securities. While the price of some securities behaves more like that of fixed-interest securities, others behave more like the underlying shares into which they may convert. Examples *A convertible bond is a bond (''i.e.'' a loan to th ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Monthly Income Preferred Stock
Monthly income preferred stock or MIPS is a hybrid security created by Eli Jacobson, a Sullivan & Cromwell tax partner, and introduced to the market by Goldman Sachs in 1993. In essence, MIPS is a combination of deeply subordinated debt and preferred stock. MIPS is structured in such a way as to make payments on the security an interest expense for the borrower and dividend for the lender. A special purpose entity of the issuer sells the preferred stock to the public and then lends the proceeds to the parent. The parent's interest payments to the subsidiary are tax-deductible as interest and are used by the SPE to pay preferred dividends to the investors. However, the interest income received by the SPE is not taxable income, because it is organized as a tax-free entity. Because of these features, MIPS at one point dominated the market for traditional perpetual preferred equity, accounting for over 70% of all new preferred issues. However, MIPS as a tax shelter no longer works. Th ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
