Finance interview Questions and answers

Cadastral map -- a legal map for recording title to a property. The map indicates legal boundaries and the ownership of the property.

call -- (1) an option to buy a specific security at a specified price within a designated period. (2) to demand payment of a loan because of the failure of the borrower to comply with the terms of the loan. (3) to demand payment for stocks or bonds that have been purchased or subscribed. See "put."

Calling officer -- a financial institution employee who goes out to call on prospective new customers and on current customers in order to strengthen their affiliation with the institution.

Call loans -- loans used to finance the purchase of securities, and which may be terminated (called) at the discretion of the borrower or the lender on demand.

Call option -- the option to buy a given amount of a commodity at a specified price during a specified period of time. Opposite of put option.

Call price -- the price at which a callable bond or security is redeemable. It is used in connection with preferred stocks and debt securities having a fixed redemption value. It is the price the issuer must pay to call in the security and retire it by paying the holder. The call price often exceeds the par, or face value, of the security in order to compensate the holder for the disruption of earnings and the bother of having to reinvest the funds, possibly at a lower rate of return.

Call protection -- a feature of mortgage loans or mortgage-backed securities designed to reduce the risk of an early call, or early prepayment, of a loan or security. Call protection may be accomplished by including prepayment penalties and lock-in periods in mortgages. Call protection also may be achieved by structuring a mortgage-backed security in such a way that if underlying loans are paid earlier than scheduled, the payments are not immediately passed through to the investor holding the mortgage-backed security. Investors and lenders sometimes desire call protection so that their funds will remain invested for the entire planned length of time, providing a consistent cash flow at predictable rates and reducing the premature need to look for new investments.

Call provision -- a clause in a mortgage giving the lender the right to demand and receive payment of the balance of the unpaid principal in full under certain conditions. A call provision is similar to an acceleration clause.

Call report -- a quarterly report of income and financial condition commercial banks file with their federal and state regulatory agencies. It is equivalent to the quarterly thrift financial report that savings institutions file with the Office of Thrift Supervision.

CAMELS -- a rating system used by federal government examiners to evaluate the safety and soundness of a savings association or a bank. CAMELS is an acronym for the six elements that are evaluated: Capital, Assets, Management, Earnings, Liquidity and Sensitivity to risk. Each of these elements is rated on a scale of 1 to 5, and an overall CAMELS rating is assigned to the institution following an examination. A rating of 1 indicates the best performance, with 5 being the worst. OTS began using the CAMELS system for thrift institution examinations commenced after April 15, 1994. Previously, OTS had used the MACRO rating system.

Canadian rollover mortgage -- the standard home financing loan in Canada. Like standard mortgages in the U.S., the Canadian rollover mortgage is fully amortizing. However, it differs in that the loan's interest rate is subject to renegotiations every five years, with no limit or cap on how much interest rates, and therefore monthly payments, can increase during the life of the loan.

canceled check -- a check that has been paid by the financial institution on which it was drawn. It is stamped "paid" on the day it is paid and it is charged to the account of the person who wrote the check.

Cap -- (1) the maximum allowable interest rate increase for adjustable rate mortgages. Caps embedded in mortgage agreements may limit the amount of upward change in the rate of interest at each adjustment period and provide a fixed maximum over which the rate cannot rise during the life of the loan. (2) an agreement negotiated between a buyer and seller. The buyer of a cap agreement pays a fee to the seller. In return, the seller will pay the buyer if a designated floating index rate is higher than a specified fixed rate on designated days. The seller pays nothing If the floating rate is below the fixed rate. Buyers of cap agreements use them to hedge against rising interest rates, because payments to the buyer increase as rates rise. See floor. See collar.

Capacity -- the ability of a borrower to repay a debt. It is determined by subtracting total expenses from the total income of the borrower.

Capital -- (1) funds raised by a business through the sale of stock plus retained earnings. (2) wealth, including money and property, owned, used, or accumulated by a person or a company. (3) assets minus liabilities equals net worth or capital.

Capital asset -- a long-term or permanent thing of value used to carry on a business or profession.

Capital directive -- an enforceable order issued by the Office of Thrift Supervision to a savings association requiring the institution to increase its capital to minimum requirements.

Capital expenditure -- money spent for additions or improvements to structures or equipment that are used to carry on the activities of an organization or individual.

capital gain or loss -- the gain or loss incurred from the sale or disposition of assets including securities and real estate.

capital improvement -- a structure or major piece of equipment built or installed to permanently add value and capacity to property.

capitalism -- an economic system based on private ownership of the means of production. Under capitalism, individuals, companies or corporations invest in, own, and share in profits (or losses) of the entities that produce goods, distribute products or provide services.

capitalization -- (1) the value of authorized or outstanding shares of stock or bonds in a business firm. (2) the process of adding earned but uncollected interest to the loan balance, a practice prohibited in some states. (3) a method of estimating the present value of future income. (4) the total value of an owner's investments in a business.

capitalization rate -- the ratio of net rentals from an income property to the market value of the property, expressed as a percentage. In appraising, the capitalization rate is used to judge value for investment purposes and can be compared to the rate of return on other kinds of investments.

capitalize -- (1) to supply with capital. (2) to authorize the sale of a specified amount of capital stock. (3) The accounting treatment of large expenses as part of a firm's assets. Thus, rather than treating an expense as a deduction from the income statement, it is treated as an investment and is expected to generate future income.

capital market -- a financial market in which long-term debt obligations and equity securities are bought and sold.

capital plan -- a written strategy developed by a thrift institution detailing steps to be taken to increase its capital to at least minimum requirements.

capital stock -- the amount of stock a corporation is authorized to sell by the government authority that grants the corporate charter. Capital stock is sold by the corporation to raise funds to be used to expand or stimulate the business activities of the company.

carrying charges -- (1) the part of the finance charge levied by most creditors to cover administrative costs of loaning money, such as billing, statement mailing costs, and bad debt losses. (2) costs incurred in order to hold title to property that is idle, non-productive, or in an interim use. (3) charges added to the price of goods or services to compensate for deferred payment. (4) fees charged by investment brokers for handling margin accounts.

cash -- (1) coins or negotiable paper issued by governments as well as the balance in demand deposit accounts. For accounting purposes, cash includes money in the cash drawer, the vault, petty cash and checking account deposits in thrift institutions or banks. (2) the process of presenting a check for payment: literally of converting a check to cash.

cash basis accounting -- a method of accounting in which income and expense items are recorded and recognized when cash is received or disbursed. Opposite of accrual basis accounting.

cash flow -- the amount of cash earned after paying all expenses and taxes. Cash flow is calculated by adding: net after-tax income plus any bookkeeping expenses that result in items being deducted but not paid out in cash. Such bookkeeping entries include amounts charged off for depreciation, depletion, amortization, and charges to reserves. Cash flow is a measure of a company's worth and its ability to pay dividends on its stock.

cashier's check -- a check written by a bank or thrift institution on its own funds and signed by a cashier. It is payable to a third party named by the customer who pays for the check at the time it is written. A cashier's check, which is drawn against the funds of the institution itself, differs from a certified check, which is drawn against the funds in a specific depositor's account.

cash investment -- the underlying security for which futures are traded.

cash market -- a market in which the delivery of commodities or securities occurs immediately after the sale. Also called a spot market.

cash-out merger -- a merger in which the acquiring company buys the stock of the target company for cash, in effect cashing out the stock of the company being absorbed. This is a variation of a traditional merger in which shareholders of the target company trade in their stock for stock in the acquiring company. By paying cash, the acquiring company reduces its capital by the amount of the cash-out, but gains the assets of the target company. In a cash-out merger, shareholders of the target company have no interest in the company that results from the merger.

Cash Wire -- see Bank Wire.

caveat -- Latin for "let him beware." In real estate transactions, it is a formal warning against the performance of specified acts.

caveat emptor -- Latin for "let the buyer beware." It refers to the sale of something of value, without a warranty from the seller. The buyer takes all risk of any loss in case of defects in the item sold.

caveat subscriptor (or caveat venditor) -- Latin for "let the seller beware." It refers to the sale of something of value in which the seller does not disclaim responsibility prior to the sale. In this situation, the seller assumes liability to the buyer for any deviations from the specifications stated in the written sales contract.

cease and desist order -- a formal demand from the Office of Thrift Supervision, other government agency, or court, to a person or institution ordering an immediate halt to a specified activity. An OTS cease and desist order is a formal enforcement action. If the respondent does not challenge the issuance of the order, it is called a consent cease and desist order.

cent -- the United States coin with the lowest value. It is equal to one one-hundredth of a dollar ($0.01).

centare (ca) -- a metric unit that equals one square meter, or 10.75 square feet. An are has 100 centares, and 100 ares equal one hectare. Also spelled centiare.

certificate -- (1) a piece of paper that is evidence of ownership. A stock certificate is evidence of ownership of one or more shares of a corporation. A savings certificate is evidence that the holder owns a savings account, usually one in which a fixed amount of funds is deposited for a specified term. (2) a form of paper money. It is a receipt for silver or gold held by the government. U.S. silver certificates are the best known. The privilege to redeem the paper certificate for the gold or silver backing it was revoked by Congress on June 14, 1968. (3) any written or printed document that can be used as proof of a fact.

certificate account -- a savings account in which the depositor is issued a certificate of deposit that states the amount of funds deposited, the rate of interest to be paid, and the minimum length of time the certificate must be held in order to collect that interest. Certificate accounts generally pay higher interest than regular passbook or statement accounts. The customer is charged a penalty for premature withdrawal of the funds originally deposited.

certificate of claim -- a written agreement to reimburse a lender for certain costs incurred in the event of a foreclosure, contingent on proceeds from the sale of the foreclosed property being sufficient to cover these costs.

certificate of completion -- a document issued by an architect or engineer stating that a construction project has been completed in accordance with approved terms, conditions, plans and specifications.

certificate of deposit (CD) -- the certificate issued to a depositor who opens a certificate account. The certificate is the written document issued by the financial institution as evidence of a deposit. It includes the issuer's promise to return the deposit at a specified future date plus earnings at a specified rate of interest.

certificate of occupancy -- a written authorization given by a local government that allows a newly completed or substantially completed structure to be inhabited.

certificate of title -- a document showing ownership, usually of real property, an automobile, or recreational vehicle, giving a description of the thing owned and any liens against the property.

certified check -- a check drawn on funds in a depositor's account that have been set aside to pay the check on demand. The face of the check bears the words "certified," or "accepted," and is signed by an official of the bank or thrift institution issuing the check to signify that (1) the signature of the drawer is genuine and that (2) sufficient funds are on deposit and earmarked for payment of the check.

certified public accountant (CPA) -- a designation given to accountants who have passed a qualifying examination and met certain educational and public accounting experience requirements established by a state licensing authority.

certified thrift regulator (CTR) -- the designation given an examiner, supervisor or other employee of the Office of Thrift Supervision who has completed education and experience requirements.

chain -- a measure of length equal to 66 feet.

chain of title -- the history of all the documents that have transferred title to a parcel of real property starting with the earliest existing document and ending with the most recent.

change -- money returned from the seller to the buyer when the buyer gives a sum of money greater than the purchase price. The change is the difference between the selling price plus taxes, fees or other charges, and the greater amount of money tendered by the buyer.

change order -- a change in the original construction plans ordered by the owner or the general contractor.

charge -- (1) a cost or expense. (2) to purchase on credit. (3) a judge's instruction to a jury.

charge account -- a line of credit that may be used repeatedly up to a stated limit of credit.

charter -- the legal authorization to conduct business granted by the federal or state government to a thrift institution or other business or organization.

chattel -- personal property. All property that is not real property (owned real estate).

chattel mortgage -- a loan secured by personal property rather than real estate.

Cheque -- a written order instructing a thrift institution or bank to pay immediately on demand a specified amount of money from the check writer's account to the person named on the check or, if a specific person is not named, to whoever bears the check to the institution for payment.

check credit -- a line of credit that customers can access by writing a check, up to a preapproved loan limit. Also called overdraft protection.

checking account -- a demand deposit account, withdrawals from which may be made by a written, negotiable instrument.

check truncation -- see truncation.

Christmas Club Account -- see club account.

churning -- slang for excessive trading in a customer's account by a broker seeking to increase commissions.

circuit breaker -- a state income tax credit for property taxes paid by elderly or low-income persons.

classified assets -- assets, generally loans, for which payments are not being made on time. Such assets are classified as substandard, doubtful or loss. See criticized assets.

classification of assets -- the process of identifying a loan that is not being repaid on schedule and designating it as one of three types of troubled loans: substandard, doubtful or loss. An asset classified substandard has at least one well-defined weakness such as being under capitalized, or not protected by the paying capacity of the borrower or the worth of the pledged collateral. A doubtful classification means an asset that has all of the weaknesses of a doubtful asset plus other characteristics that make collection or liquidation highly questionable and improbable, but still possible. As asset classified loss is considered uncollectible and of such little value that its continuance as an asset on the books of a thrift institution is not warranted. Designating an asset to one of these categories is called classifying an asset.

classified loan -- a loan that is not being repaid on time and has been designated a troubled asset. See classification of assets.

clearing account -- a bank account used by a mortgage servicing company for the temporary, short-term deposit of mortgage payments that have been collected and are either awaiting transmittal to investors who bought the mortgages or awaiting deposit in escrow accounts.

clearing house -- (1) an agency operated by financial organizations to exchange and pay checks drawn on each other. (2) an organization connected with a commodity exchange through which all futures contracts are reconciled, settled, guaranteed, and later either offset or fulfilled through delivery of the commodity, and through which financial settlements are made.

clearing member -- a member of a commodity exchange who is also a member of the exchange's clearing house.

clear title -- title to property that is marketable by virtue of its title being free from demands or claims by other parties and not encumbered in any other manner.

Clifford trust -- a fixed-term, irrevocable trust account usually opened as a means of reducing the income taxes of the grantor (the person who opens the account and deposits funds in the account). The trust must last for a minimum of 10 years. During that time, income from the account is paid to a named beneficiary, and thus is not taxable to the grantor. At the end of the term of the trust, the principal, or property placed in trust, reverts to the grantor.

close-end credit -- a type of credit arrangement in which the lender, at the time credit is first extended, limits the amount of credit to a specific amount, determines the length of time for repayment and determines the amount of each periodic payment. Most real estate and automobile loans are closed-end agreements.

closed-end mortgage -- a mortgage in which the amount of debt is fixed and cannot be increased during the life of the loan. It is the opposite of an open-end mortgage.

closed period -- the period of time during the term of a mortgage loan when the loan cannot be prepaid.

closing -- the consummation of a financial transaction. In mortgage lending, closing is the process of delivering a deed, signing notes, mortgages and other loan documents, and advancing funds by the lender. All of these transactions normally occur at the same time.

closing costs -- expenses paid by a buyer and/or seller for the cost of processing the sale or financing of real property. Such costs include loan fees, title fees, and appraisal fees.

closing price -- the price at which transactions are made just before the end of trading on a given day.

cloud on the title -- an expression meaning that a claim or encumbrance on a property prevents the conveyance of a clear title when the property is sold.

club account -- a savings account dedicated to a specific goal, such as a Christmas club account or vacation club account, and based on weekly or biweekly deposits of a fixed amount.

cluster zoning -- a type of zoning in which density is determined for an entire area, rather than on a lot-by-lot basis. Within the cluster zone, the developer has greater flexibility in designing and placing structures so long as the overall density requirement is met. Developments in cluster zoning often incorporate open, common areas with park-like settings.

coin -- a small, usually round, flat piece of metal stamped with a design and issued by a government as currency.

collar -- (1) the highest and lowest rates of interest that will be paid on the face value of a floating-rate note. (2) an agreement between a buyer and seller. The buyer pays a fee to the seller. In return, the seller will pay the buyer if a designated floating index rate rises above or falls below a specified range of fixed rates. See cap. See floor.

collateral -- something of value that is pledged as security for a loan. The lender can repossess the collateral if the loan is not repaid.

collateralized mortgage obligation (CMO) -- a type of bond having mortgages or mortgage-backed securities as collateral. Principal and interest payments from an underlying pool of mortgages are redirected to pay the CMO holders until the CMOs are retired. A single issue of CMOs contains two or more classes of bonds called tranches, each with a different length of maturity, providing a form of call protection to the holder of a CMO. A holder who wants to lock in a CMO investment for a specific length of time will buy into a tranche with a low risk of being retired early because the underlying mortgages are paid off early. Such low prepayment risk tranches are called planned amortization classes (PACs). Changes in prepayment rates in the underlying pool of mortgages are absorbed first by another tranche, so that the PAC remains unaffected by prepayment risk. CMOs generally pay principal and interest semiannually. CMO were first issued by the Federal Home Loan Mortgage Corporation (Freddie Mac) in June 1983.

collection -- (1) the presentation for payment and the subsequent actual payment of a draft, check or other obligation. (2) the process of resolving a delinquent, or past due, mortgage loan including, when necessary, proceeding with foreclosure.

commercial bank -- a financial institution chartered by a state or federal agency that accepts demand deposits and offers commercial loans. Other types of financial services usually are provided as well.

commercial loan -- a loan to a company to meet business operating expenses or to finance the purchase of inventory.

commercial mortgage loan -- a mortgage loan secured by real estate used by a business or to generate income. Also called an income property loan.

commercial paper -- a written agreement setting forth the terms and conditions under which funds are borrowed by a corporation and promising to repay the debt. Commercial paper is issued by large corporations of good credit standing to borrow unsecured funds for a short time, usually 90 days, but no more than nine months. Commercial paper is bought, sold, and traded by individual and corporate investors.

commission -- a fee paid to a person for conducting a business transaction or performing a service. A commission is usually based on a percentage of the total transaction.

commitment -- (1) an agreement between a lender and a borrower to lend money at a future date, provided stated conditions are met. (2) a promise by Freddie Mac to a primary mortgage lender to buy mortgage loans at a future date.

commitment fee -- (1) a payment by a prospective borrower to a prospective lender in return for the lender's promise to loan money at a specified future date. (2) in the secondary market, a payment by a primary lender to Freddie Mac or other mortgage buyer for the buyer's promise to buy loans at a future date.

commitment letter -- a letter sent by a lender informing a borrower that the lender has approved a loan application for a specific amount, term and rate, and listing any conditions that must be met before the loan funds are disbursed.

Committee on Uniform Securities Identification Procedures (CUSIP) -- the organization that develops and assigns identifying numbers and symbols for all securities.

commodities futures -- contracts for the future delivery at a fixed price of goods, such as agricultural or mining products, or future delivery at a fixed price of securities backed by those products. The contracts are bought and sold on commodities exchanges. See financial futures.

commodity -- something of value that can be bought or sold, usually a product or raw material.

Commodity Futures Trading Commission (CFTC) -- a federal agency responsible for coordinating the commodities industry in the United States. Established in April 1975, the CFTC is charged with detecting and prosecuting violators of the Commodity Exchange Act of 1976.

common area -- land or improvements that are designated for common use by all occupants, tenants, or owners.

common law -- the body of law developed first in England from judicial decisions shaped by custom and precedent, but not written in any formal statute. Common law is the basis of the legal system in England and the United States.

common stock -- securities that are evidence of proportionate equity or ownership of a corporation, and give the holder an unlimited proportionate interest in the corporation's earnings and assets after claims from creditors and the holders of preferred stock have been met.

Community Investment Program -- a program offered by each Federal Home Loan Bank to provide advances to member institutions which use them in community lending to moderate income families.

community property -- a form of ownership in some states in which property acquired during a marriage is presumed to be owned jointly unless specifically acquired as separate property of either spouse.

Community Reinvestment Act of 1977 (CRA) -- requires financial institutions to meet the credit needs of all segments of their communities, including low- and moderate-income neighborhoods.

compensating balance -- a dollar amount equal to the lowest percentage of a line of credit that the customer of a financial institution is expected to maintain, usually in a demand deposit account, as a condition for being granted the line of credit.

compliance exam -- an examination of a savings institution to determine how well it is complying with federal law and regulations, particularly those dealing with consumer protection and non-discrimination.

compliance period -- the period of time during which a thrift institution must comply with a regulation, ruling, order, or resolution of its regulatory agency.

compound interest -- the interest that accrues when earnings for each specified period of time are added to the principal, thus increasing the principal base on which subsequent interest is computed. See simple interest.

Comptroller of the Currency (OCC) -- a federal office created by Congress in 1863 as a part of the national banking system. The Comptroller of the Currency is a bureau of the Treasury Department and charters, regulates and examines national banks. The Comptroller of the Currency came into being during the civil war. In part to finance the war debt, Congress authorized federally chartered banks that were to issue bank notes -- in other words, currency. Initially, the OCC provided the bank notes to these federally chartered banks, and each bank then printed its own name on the paper money it put into circulation. Thus, the agency got its name from its original responsibility of controlling the currency it distributed to these federal banks.

condemnation -- the legal process for taking over privately owned property for public use, under the right of eminent domain, with just compensation to the owner.

conditional endorsement -- a type of restrictive endorsement on a negotiable instrument that designates both the next titleholder and conditions to the endorser's liability.

condominium -- a single dwelling unit in a multi-unit structure in which each unit is individually owned. The owner holds legal title to his or her unit and owns the common areas (roof, basement, halls, stairs, etc.) and land jointly with other unit owners. An owner may live in his or her condominium, rent it or sell it. Owners pay individual property taxes and may claim tax exemptions just as they would if they owned a free standing, single-family home.

conduit -- (1) industry term for a firm through which mortgages flow. The company issues mortgage-backed securities based on mortgage loans it buys from a number of primary lenders. (2) a type of roll-over IRA used by individuals to transfer all or any part of a lump-sum distribution from one retirement plan to another retirement plan. (3) any intermediary between a lender and an investor.

confession of judgment -- a clause in a loan contract providing that the borrower waives the right to be notified and the right to be heard in court if the lender brings suit and obtains a judgment against the borrower in the event of a default. This credit practice was prohibited by regulation in 1985.

Confidential Individual Information System (CIIS) -- a computerized nationwide data base used by the various national and local offices of the Office of Thrift Supervision to collect and share information about persons who require particular supervisory attention. The system is designed to alert federal regulators to persons who have been the subject of supervisory concern. CIIS is used to prevent persons who have been caught violating regulations in one savings institution from moving to a different part of the country and causing problems in another institution.

conflict of interest -- a situation in which a person may realize personal benefit from decisions or actions he or she may take on behalf of something the person is entrusted to manage or care for. For example, a director of a savings association would have a conflict of interest approving loans to companies in which the director has a personal interest.

conforming loan -- a mortgage loan that conforms to regulatory limits such as loan-to-value ratio, term and other characteristics.

congregate housing -- a housing development in which a central dining facility is provided and some or all of the dwelling units have no kitchen facilities. This type of arrangement is sometimes used in housing for the elderly, who want to be free of cooking chores.

consent merger agreement -- a type of supervisory agreement in which the board of directors of a troubled savings institution agrees to have the Office of Thrift Supervision arrange for a merger of the troubled institution into another institution. Such arrangements were formerly called consent agreements or consent resolutions, but in the late 1980s they began to be handled as a type of supervisory agreement. See supervisory agreement.

conservator -- (1) a person appointed by a court to protect and preserve the property of an individual who is physically or mentally unable to handle his or her own affairs. (2) a person appointed by a court to protect the interests of an estate. (3) an agency or person placed in charge of a troubled savings institution or bank by federal or state authorities to protect and conserve the assets of the institution while more permanent measures for dealing with the institution are worked out.

conservatorship -- the state of being under the control of a conservator. A conservatorship affects the control and operation of an institution or company but does not alter its ownership. See receivership.

consideration -- an element that is required in all valid contracts. A consideration is anything of value. All parties to the contract must exchange something of value.

consignee -- the ultimate recipient of goods being shipped.

consignment -- the act of entrusting goods to a dealer for sale, but retaining ownership of them until sold. The dealer pays the seller only when and if the goods are sold.

consignor -- the originator of a shipment of goods.

consolidate -- to bring together various financial obligations under one agreement, contract, or note.

consolidated obligations -- debt instruments (bonds and discount notes) sold by the Federal Home Loan Banks through the Office of Finance. The obligations consolidate the borrowing needs of all 12 Banks into joint securities offerings sold in the capital markets. The Banks share the funds raised by the sale of the securities, and they share the obligation to repay the debt. Thus each Bank is legally responsible for repayment of its own debt plus the debt of all other Federal Home Loan Banks.

consolidated metropolitan statistical area (CSMA) -- a geographic unit composed of two or more adjacent standard metropolitan statistical areas having a combined population of one million or more, with close social and economic links.

consolidation -- the results obtained on a balance sheet when the accounts of a parent company and its subsidiaries are combined to reflect the financial position and operating results of the group as if it operated as a single entity.

consolidation loan -- a loan that consolidates, or pays off, several old loans and replaces them with one new loan, usually to obtain a lower interest rate or lower monthly payment by extending the loan over a longer period of time.

consortium -- a group of corporations, financial institutions or other companies that join forces to achieve a mutually agreed upon objective, requiring cooperation and pooling of resources.

constant dollars -- the price paid for something in previous years, adjusted for inflation to equal what the price would be in current dollars. Constant dollars permit comparisons of the true cost of goods and services or other financial data from different time periods.

constant payment -- a periodic payment of a fixed amount that includes interest and principal. While the total amount of the payment remains the same, the ratio of principal and interest included in the payment changes. As the loan is paid off, the portion of the payment applied to the principal increases. Most home mortgages are constant payment loans.

construction loan -- a short-term, interim loan for financing the cost of construction. The lender makes payments called draws to the builder at periodic intervals as the work progresses.

consumer credit -- any loan or extension of credit to an individual for personal, family, or household use not involving real estate.

Consumer Price Index -- a monthly measure of changes in the prices of goods and services consumed. The index is compiled by the U.S. Bureau of Labor Statistics.

continuing examination file -- a file containing information of continuing interest to on-site examiners. Such items as policies, business plans, articles of incorporation and bylaws are included in the file.

contra -- against, opposite, or contrasting. In accounting, a contra entry is one which is offset by an opposite entry, either a debit or credit.

contra asset -- an item that is entered on the asset side of an accounting ledger even though the item has a credit (negative) balance. For a thrift institution, contra assets include such items as deferred income and loans in process.

contract -- a binding agreement between two or more persons or entities, such as companies or institutions, by which rights to specific goods, services or actions are acquired by the parties to the contract.

contract for deed -- a written agreement between the seller and buyer of a piece of property, whereby the buyer receives title to the property only after making a determined number of monthly payments; also called an installment contract or land contract.

controller -- the chief financial officer of a company, financial institution or other entity. The controller is responsible for supervising the operations of the accounting department and preparing its financial reports. Also spelled comptroller.

controlling person -- anyone who directly, indirectly, or acting in concert with one or more persons or companies, or together with members of the immediate family, owns, controls, or holds with power to vote, 10 percent or more of the voting stock of a savings institution, or controls in any manner the election or appointment of a majority of the institution's board of directors.

conventional mortgage loan -- a fixed- or adjustable-rate, fully amortized loan secured by a mortgage or deed of trust that is not insured or guaranteed by an agency of the federal government (such as FHA or VA).

convergence -- the narrowing of futures prices to cash prices as the delivery date approaches.

conversion -- in the financial services industry, the term refers to a change of ownership of a thrift institution from mutual to stock form (or vice versa), or a change of charter from state to federal (or vice versa). See supervisory conversion.

convertible -- a bond or a preferred stock that, under specified conditions, may be exchanged for common stock or another security, usually of the same issuer.

convexity -- rate of change in duration with respect to changes in interest rates. Positive convexity occurs when durations shorten as interest rates rise or lengthen as interest rates decrease. Negative convexity occurs when durations lengthen as interest rates rise or shorten as interest rates decrease. Mortgages typically have negative convexity, because as interest rates rise the incentive to prepay is reduced, thus extending the duration of the mortgage.

convey -- the act of transferring title to real property from one party to another.

conveyance -- a document, such as a deed, used to effect a transfer of property from one owner to another.

cooperative -- a system of indirect ownership of a single unit in a multi-unit structure. The individual owns shares in a non-profit corporation that holds title to the building. In turn, the corporation gives the owner a long-term proprietary lease on the unit. The corporation may finance the property with a blanket mortgage. Homeowners, in turn, may get a share loan to finance the purchase of the shares that entitle them to occupy a specific apartment. Also called a co-op.

cooperative banks -- state-chartered savings associations located in Massachusetts, New Hampshire, Rhode Island and Vermont.

core capital -- one of three capital standards established for savings institutions in 1989. The minimum amount of core capital for the soundest institutions is 3 percent of assets. See tangible capital, risk-based capital.

core deposits -- those deposits that are expected to remain with a savings institution for a relatively long period of time. Such deposits are attracted by the convenience and service offered by the institution rather than from interest rates paid.

core deposit intangibles -- a premium paid to acquire the core deposits of an institution. The premium is the amount paid in excess of the dollar amount of the deposits, and under accounting rules, the premium is listed on the books as an intangible asset.

corner lot -- a lot abutting two or more streets at their intersection.

corporation -- a group of people granted a charter legally recognizing them as a separate entity having its own rights, powers, privileges and liabilities distinct and separate from those of its members.

corporator -- (1) a member of a corporation, especially one of the original members who formed the corporation. (2) one of a group that, in certain states, elects the trustees of a mutual savings bank.

corporeal property -- real or personal property having form or structure, such as a house, furniture, land, equipment or an automobile.

correspondent bank -- a bank that regularly performs services for another financial institution usually located in another city or marketing area. Services typically include handling out-of-area checks, trusts and technical services, and acceptance of deposits from the out-of-area institution.

cosigner -- an individual or entity that signs a legal document on an equal basis with the signer. On a promissory note, all cosigners are individually and jointly liable for repayment of the full debt.

cost -- something of value, usually an amount of money, given up in exchange for something else, usually goods or services. All expenses are costs, but not all costs are expenses. (An expense is the cost of resources used to produce revenue.) As a verb, cost means to estimate the amount of money needed to produce a product or perform a service.

cost accounting -- a branch of accounting dealing with the classification, recording, allocation, summarization and reporting of current and prospective costs and analyzing their behaviors. Cost accounting is frequently used to facilitate internal decision making and provides tools with which management can appraise performance and control costs of doing business.

cost approach to value -- an approximation of the market value of improved real estate measured as the cost of reproduction or replacement.

cost basis -- the original price of an asset, normally the purchase price or the appraised value of the asset at the time of acquisition.

cost-effective -- economical in terms of tangible benefits produced by money spent.

cost of funds -- the interest paid or accrued on savings, advances from a Federal Home Loan Bank or interest on other funds borrowed by a thrift institution, expressed as a percent of its average total savings and borrowings during a given accounting period.

cost of funds index -- a measure of how much interest a financial institution must pay for money it borrows from savers in the form of deposits, or from other lenders such as a Federal Home Loan Bank. The index, expressed as a percentage, is calculated by dividing the total amount of interest (or costs) paid or accrued on deposits, on District Bank advances and on other borrowed money, by the average amount of deposits and borrowed money on hand during a reporting period. A cost of funds index, such as the one published by the Office of Thrift Supervision, may be used by lending institutions as the basis for adjusting interest rates on adjustable rate mortgage loans.

cost-plus contract -- a construction contract in which the contract price is equal to the cost of construction plus a profit allowance to the builder, as opposed to a fixed price contract.

counterfeit -- something that is an imitation and is made to deceive persons into believing that the forgery is genuine. Counterfeit money, for example, are bills printed by private parties to be passed off as legitimate U.S. currency.

counterparty -- the other party in a swap transaction.

countersignature -- an additional signature attesting to the authenticity of the first signature or the authenticity of the document being signed.

coupon -- (1) a tab attached to a bond, which can be torn off and presented to collect an interest payment, usually semiannually. (2) a percentage of a bond's face value, which is the annual rate of return received by the bondholder.

coupon bond -- a written document evidencing a debt obligation to which interest coupons are attached. Each coupon bears a different maturity date and states the interest due on that date. The bondholder clips the coupons from the bond as they mature and presents the coupons to the bond issuer for payment of interest.

coupon book -- a set of notices, usually computer generated, that the borrower returns to the lender, one at a time, with each loan repayment or with each deposit to a savings account such as a club account.

coupon rate -- the annual interest rate of a debt instrument. More generally, the annual interest rate on any indebtedness. In mortgage banking, the term is used to describe the contract interest rate on the face of a bond or note.

court -- (1) an open area between buildings or walls. (2) an institution in which disputes and conflicts are heard, argued and decided on the basis of law. (3) an area equipped for playing such games as tennis or racquetball, and sometimes provided as an amenity for owners or tenants in a housing development.

court of equity -- a court of law in which mortgage suits and foreclosure actions are heard and decided.

covenant -- the part of a loan agreement that sets forth constraints as to what the borrower will and will not do regarding the property pledged as collateral for the loan. Covenants may also be written into a deed. Real covenants bind subsequent owners of the property while personal covenants do not.

covered assets -- assets of a failed financial institution that are purchased or acquired under a government program that protects the new owner against all or partial loss when the assets are sold.

cramdown -- a court-ordered reduction of the secured balance due on a home mortgage loan, granted to a homeowner who has filed for personal bankruptcy. In a cramdown, the bankruptcy court splits the outstanding mortgage balance into two parts. The amount of debt equal to the current appraised value of the home is treated as a secured claim, which the borrower must continue to pay. The amount of debt in excess of the current property's value becomes an unsecured claim, which is usually not repaid in full. In areas where home prices have depreciated, cramdowns can result in significant mortgage reductions. In some cases, the judge may order the remaining secured debt amortized over the remaining life of the loan term, thus lowering monthly payments. In other cases, monthly payments remain the same as before the cramdown, and the secured mortgage is simply paid off faster.

credit -- (1) the provision of goods or services in exchange for the promise of future payment. (2) an accounting term that refers to the right-hand side of an account record in which the amounts are entered in a double-entry system of bookkeeping.

credit bureau -- an agency that collects and distributes credit-history information of individuals and businesses.

credit card -- a plastic card that can be used by the cardholder to make purchases or obtain cash advances using a line of credit extended by the financial institution that issued the card. The card normally contains the cardholder's name and account number and may contain other information encoded on a magnetic strip. Some credit cards may be used in automatic teller machines.

credit crunch -- slang for a general economic condition in which loans are harder to obtain.

credit life insurance -- insurance on the life of a borrower that pays off a specific amount of debt or a specified credit account if the borrower dies.

creditor -- an individual, business or other organization to whom money or something of value is owed.

credit rating -- an estimate of the likelihood that a borrower will repay a loan on time. This measure of creditworthiness is based on the borrower's present financial condition, past credit history, integrity and experience.

credit risk -- an estimate of the probability that a borrower will not repay all or a portion of a loan on time. The risk that a loan will not be repaid.

Credit Standards Advisory Committee (CSAC) -- an independent committee established by Congress in the Financial Institutions Reform, Recovery and Enforcement Act of 1989. The committee consists of representatives of the five federal bank/thrift regulatory agencies plus six members of the public who are knowledgeable with the credit standards and lending practices of insured depository institutions. The committee's mission is to monitor and review the credit standards and lending practices of federally insured depository institutions and recommend any needed changes in federal regulation and supervision.

credit union -- a cooperative organization chartered by state or federal government that accepts savings from its members and makes low interest loans to its members. Credit unions are normally formed among members who are employed by the same company or are members of the same organization.

criticized assets -- loans with payments in arrears that are rated by government examiners as substandard, doubtful, loss or special mention. Criticized assets include classified assets plus those listed as special mention. See classified assets.

cubage -- a method of appraising property using the cost approach. The front, or width, of the building is multiplied by the depth of the building and by its height, figured from the floor of the basement to the outer surfaces of the exterior walls and roof. The total cubic measurement is then multiplied by a cost-per-cubic-foot factor to obtain the appraisal figure.

cul de sac -- a street with a dead end, usually with adequate space at the end for vehicles to turn around.

Culpeper Switch -- a federal reserve facility located in Culpeper, Virginia, just south of Washington, DC, housing computers that serve as a central relay for messages transmitted electronically on the Fedwire. Messages moving billions of dollars of funds and securities are processed electronically every day at the Culpeper facility. Most messages originate at financial institutions, are sent to Federal Reserve Banks and then are transmitted to Culpeper, where they are switched to other Federal Reserve Banks and finally to receiving financial institutions.

currency -- coins and paper money, which circulate as a legal medium of exchange.

current ratio -- the ratio of total current assets to total current liabilities, calculated by dividing current assets by current liabilities.

current value accounting -- an accounting method that measures the value of individual assets at the current prices they would command rather than at the actual dollar cost at which they were purchased in earlier times.

CUSIP number -- a number assigned to securities by the Committee on Uniform Securities Identification Procedures (CUSIP). The identifying numbers and codes are used to record all buy and sell orders.

custodial gift -- a gift to a minor child from an adult who retains control over the gift, or grants such control to another adult, until the child reaches maturity age and legally can accept responsibility for the gift. A custodial gift may be in the form of a custodial savings account at a depository institution.

custodian -- a financial institution that holds in custody and for safekeeping the securities and other assets of an investment company.

customer draft -- see sight draft.