FINSIA Professional Banking Fundamentals key terms

Rules imposed on banks by a supervisor to keep them financially sound, covering capital, liquidity, lending limits and risk management so depositors and the wider financial system are protected.

The requirement that a bank hold enough capital relative to the riskiness of its assets, so it can absorb losses without failing and still repay depositors.

A bank's exposures adjusted for credit, market and operational risk, used as the denominator when measuring whether capital held is sufficient for the risks taken.

The highest-quality capital, mainly ordinary shares and retained earnings, which absorbs losses first and is the core measure regulators watch when judging a bank's strength.

The danger that a bank cannot meet its payment obligations as they fall due, perhaps because assets cannot be sold quickly or funding sources suddenly withdraw.

A supervisory measure comparing a bank's stock of high-quality liquid assets with the net cash outflows expected over a thirty-day stress period, testing short-term survival.

The Australian Prudential Regulation Authority, the statutory body that supervises banks, insurers and superannuation funds to protect depositors and promote financial system stability.

The Australian Securities and Investments Commission, which regulates market conduct, disclosure, licensing and consumer protection rather than the prudential soundness of institutions.

Australia's central bank, responsible for monetary policy, financial system stability, issuing currency and overseeing the payments system, and acting as lender of last resort.

Central bank actions, chiefly setting the policy interest rate, aimed at keeping inflation within target and supporting sustainable growth and employment.

The possibility that a borrower or counterparty fails to repay principal and interest as agreed, causing the lender to suffer a financial loss.

The exposure of a bank's earnings or capital to movements in interest rates, arising from mismatches between repricing dates of assets and liabilities.

The risk of loss from inadequate or failed internal processes, people, systems or external events, including fraud, errors and technology outages.

The amount lent expressed as a percentage of the property's assessed value; a higher ratio signals greater credit risk and often triggers lender's mortgage insurance.

A policy protecting the lender, not the borrower, against loss when a home loan defaults and the sale proceeds fall short, typically required for high loan-to-valuation loans.

Setting aside an allowance in the accounts for loans expected to be uncollectible, reducing reported profit and reflecting deterioration in the credit quality of a portfolio.

A facility on which the borrower has fallen behind on repayments, or where doubt exists about full collection, and which is therefore treated as impaired.

International standards agreed by bank supervisors covering minimum capital, liquidity and leverage, which national regulators such as APRA adopt in their own prudential rules.

A scheme, such as Australia's Financial Claims Scheme, that guarantees depositors up to a capped amount per account holder if a bank fails.

The process of identifying a client, verifying identity documents and understanding the purpose of the relationship before providing services.

Laws and procedures requiring institutions to detect, report and prevent the movement of proceeds of crime through the financial system, including suspicious matter reporting.

Ongoing checks on a client's identity, source of funds and transaction pattern, proportionate to risk, used to detect unusual activity and meet legal obligations.

The legal obligation on certain advisers and mortgage brokers to act in the client's best interests and prioritise that interest over their own remuneration or convenience.

Situations where a banker's personal, financial or institutional interest could improperly influence a decision affecting a client; these must be disclosed and managed.

The Australian Financial Complaints Authority, an external dispute resolution scheme that hears consumer complaints about financial firms and can award compensation.

A licensee's own formal process for receiving, investigating and responding to customer complaints within set timeframes before the matter escalates externally.

A personal recommendation about financial products or strategy given to a client, which triggers disclosure, suitability and conduct obligations for the provider.

A written document given to a retail client setting out the advice, its basis, the client's circumstances and all fees and conflicts, so the recommendation can be understood.

A regulated document summarising a financial product's features, risks, fees and cooling-off rights, issued so retail investors can compare and make informed decisions.

A document describing which class of customers a product suits and the conditions under which distribution remains appropriate, required of issuers under design and distribution rules.

The requirement that a credit provider assess a borrower's capacity to repay without substantial hardship before entering a credit contract.

A legal obligation to act solely in another party's interest, with loyalty and good faith, arising where one party is entrusted with another's money or affairs.

The duty to keep client information private and use it only for the purpose it was provided, subject to legal exceptions such as court orders or reporting obligations.

Legal protection governing how personal information is collected, used, stored, disclosed and accessed, including the right of individuals to correct their records.

The controls, policies and technology a bank uses to protect systems and client data from unauthorised access, fraud and disruption.

Arranging for another party to perform a function or process, which does not transfer the bank's accountability to the regulator or its customers.

The exposure a bank faces when service providers, agents or counterparties fail to perform, breach security or create concentration and reputational problems.

Pay and incentives given to staff and intermediaries; design matters because poorly structured incentives can drive mis-selling and conflicts of interest.

A board-approved declaration of how much and what kinds of risk an institution is willing to accept in pursuing its strategy, guiding limits and decision-making.