The Money Equation · Appendix C
Finance glossary
40 terms, defined the way the book uses them.
A
- ACH
- Automated Clearing House: the US network, governed by Nacha, that settles payroll, bill payments and transfers between banks in batches; Same Day ACH settles within the day.
- Acquirer
- The bank or processor that accepts card payments for a merchant and collects the money from the card network.
- AFS (available-for-sale)
- Securities carried at market value, with unrealised gains and losses recorded in equity.
- AT1 (additional tier 1) bond
- A bank bond that can be written down or converted to equity when the bank's capital falls or a regulator intervenes.
B
- BaaS (banking as a service)
- An arrangement in which a licensed bank provides accounts, cards and payment access to a non-bank company that serves the customer.
- BSA/AML
- The Bank Secrecy Act and anti-money-laundering rules, which require financial firms to know their customers, monitor transactions and report suspicious activity.
C
- CAC
- Customer acquisition cost: the cost of winning a customer.
- CECL
- Current expected credit loss accounting, under which US lenders reserve for expected lifetime losses when a loan is made.
- CET1
- Common equity tier 1: a bank's highest-quality capital, measured against its risk-weighted assets.
- Chargeback
- The reversal of a card payment at the cardholder's request, charged back to the merchant through the acquirer.
- Combined ratio
- An insurer's losses and expenses as a share of earned premiums; below 100% means an underwriting profit.
- Conservatorship
- Control of a company by a regulator acting as conservator, as with Fannie Mae and Freddie Mac since 2008.
- Convexity
- The change in a bond's duration as rates move; it makes price falls smaller and rises larger than duration alone predicts.
- Cost of float
- An insurer's underwriting loss divided by its float; negative when underwriting is profitable.
D
- Deposit beta
- The share of a change in market interest rates that a bank passes on to its depositors.
- Duration
- The sensitivity of a bond's price to interest rates; modified duration is approximately the percentage price change for a one-point change in yield.
- Durbin amendment
- The provision of the Dodd-Frank Act under which the Federal Reserve's Regulation II caps debit interchange for issuers with $10 billion or more of assets. A North Dakota federal court vacated the cap in August 2025 and the Eighth Circuit affirmed on 26 October 2026, which leaves the Fed to rewrite the cap.
F
- FedNow
- The Federal Reserve's instant payment service, launched in July 2023.
- Float
- Money an insurer holds between collecting premiums and paying claims, or a payments firm holds between receiving and paying out funds.
G
- Guarantee fee
- The annual fee Fannie Mae and Freddie Mac charge for guaranteeing timely payment on mortgage-backed securities.
H
- HTM (held-to-maturity)
- Securities carried at amortised cost, with unrealised losses shown only in the notes, as long as the bank intends and is able to hold them.
I
- Interchange
- The fee the merchant's acquirer pays the card issuer on each card transaction, set by the card network or capped by regulation.
K
- KYC
- Know your customer: verifying the identity and risk of customers.
L
- Leverage
- Assets or exposure as a multiple of equity.
M
- Market-access rule
- SEC Rule 15c3-5, which requires brokers with access to exchanges to have controls that prevent erroneous orders and orders beyond credit or capital limits.
- Merchant discount rate
- The total a merchant pays to accept a card: interchange, network fees and the acquirer's markup.
- Money transmitter
- A non-bank licensed by the states to move or hold money for customers.
N
- NII and NIM
- Net interest income, interest earned less interest paid; net interest margin, NII as a share of earning assets.
P
- Payment for order flow
- Payments by market makers to brokers for routing customers' orders to them.
- Prime brokerage
- Financing, securities lending, custody and swaps that banks provide to hedge funds and family offices.
R
- Reserve development
- Changes in an insurer's estimate of claims from earlier years; adverse development means the claims cost more than booked.
- RTP
- The Clearing House's real-time payments network, launched in 2017 and owned by large banks.
- Run
- Rapid withdrawals by depositors or creditors who fear they will not be repaid in full.
S
- Sponsor bank
- A bank that holds the deposits, issues the cards and carries the compliance obligations for a fintech's programme.
- Stablecoin
- A crypto token designed to hold a fixed value, usually one US dollar, backed by reserves.
- Sweep
- The automatic transfer of a brokerage client's idle cash into a bank deposit or money-market fund.
T
- Total return swap
- A contract that pays one party the full return on an asset in exchange for a financing payment, giving economic exposure without legal ownership.
U
- Uninsured deposits
- Deposits above the FDIC's $250,000 insurance limit per depositor, per bank, per ownership category.
- Unrealised loss
- The fall in market value of an asset still held, below its book value.
Z
- Zelle
- The bank-owned person-to-person payment network operated by Early Warning Services.