IBSL Diploma in Banking and Finance (DBF) Exam key terms

The set of identity-verification and background checks a bank performs on a person or entity before opening an account or providing services, aimed at confirming who the customer is and understanding the purpose of the relationship.

A centralised computer system that holds customer accounts and processes transactions across all branches in real time, so a customer can operate from any branch and balances update immediately.

Money held in an account that the customer may withdraw at any time without prior notice, typically a current or savings account, and which the bank is obliged to repay on demand.

A customer's written authority allowing the bank to transfer a fixed sum from the account on set dates, usually to repay a loan instalment or a recurring bill, until the customer cancels it.

An account a bank holds with a correspondent bank in another country, kept in that country's currency, and used to settle foreign exchange deals and pay local obligations.

A central arrangement through which banks exchange cheques and electronic payment instructions drawn on one another and settle the resulting net balances, so funds move without transfer between every pair of banks.

A regulatory requirement obliging banks to direct a minimum share of credit to specified underserved or economically important groups such as agriculture, small businesses and low-income housing.

A written document, such as a cheque, bill of exchange or promissory note, containing an unconditional promise or order to pay, whose ownership can pass by delivery or endorsement.

A recording method in which every transaction is entered twice, as a debit in one account and an equal credit in another, so that total debits always equal total credits.

A basis of accounting that records income when it is earned and expenses when they are incurred, regardless of when cash actually moves, giving a fuller picture of performance.

The assumption that a business will keep operating for the foreseeable future, so assets are shown at cost or use value rather than at the break-up amounts they would fetch if sold off.

The convention that accountants recognise expenses and losses as soon as they are reasonably foreseeable, but recognise gains only when realised, avoiding overstatement of profit or assets.

A working paper explaining the difference between the balance in the bank's records and the balance in the customer's own cash book, listing items such as unpresented cheques and unrecorded bank charges.

An amount charged against profit and set aside in the accounts to absorb loans and advances expected not to be recovered, based on the classification of borrowers by repayment performance.

A possible obligation whose existence will be confirmed only by a future event outside the bank's control, such as a guarantee or a pending lawsuit, disclosed in the notes rather than recognised on the balance sheet.

The interest rate at which the central bank lends short-term funds to commercial banks against government securities, used as a principal lever for steering market interest rates and credit conditions.

The share of a bank's deposits that must be held as cash with the central bank, earning no interest, which limits how much of the deposited money the bank can lend out.

The buying or selling of government securities by the central bank in the market to add or drain liquidity from the banking system and thereby influence short-term interest rates.

A graph plotting the interest rates on bonds of the same credit quality against their maturities, whose shape signals market expectations about future rates and economic growth.

The total stock of money in an economy at a point in time, measured in widening aggregates that add progressively less liquid items such as currency, demand deposits and time deposits.

The price of one currency expressed in another, determined by supply and demand in the foreign exchange market and influenced by interest rates, inflation and cross-border capital flows.

A short-term debt instrument issued by the government at a discount to face value and redeemed at par on maturity, used to manage cash flows and provide a near risk-free benchmark.

A transfer of an interest in immovable property to a lender as security for a loan, where the borrower keeps possession but the lender may enforce the security if the debt is not repaid.

A charge created over movable goods, often stock or machinery, where the borrower keeps possession and ownership but the lender may seize and sell the goods if the loan defaults.

A lender's right to retain property in its possession, such as securities or goods, until a debt owed by the owner of that property is settled.

The right of a bank to combine two accounts of the same customer, one in credit and one in debit, and apply the credit balance to reduce the amount owed.

A promise by a third party to meet a customer's obligation if the customer defaults, giving the bank a second source of repayment and a legal claim against the guarantor.

The time limit set by law within which a creditor must bring suit to enforce a claim; once it expires the debt is not extinguished but becomes legally unenforceable.

An internationally agreed set of bank capital, leverage and liquidity standards issued after the global financial crisis, prescribing how much loss-absorbing capital and liquid assets banks must hold.

Laws, rules and internal procedures requiring banks to identify customers, monitor transactions and report suspicious activity so that proceeds of crime cannot be washed through the financial system.

The possibility that a borrower or counterparty will fail to meet agreed payments of interest or principal on time, causing the bank to suffer a loss.

A statistical method that converts borrower characteristics and repayment history into a numerical score, used to rank applicants by their likelihood of defaulting on a proposed facility.

The amount of a loan expressed as a percentage of the appraised value of the asset financing it; a high figure means little borrower equity and a bigger loss if prices fall.

A measure of a borrower's ability to meet loan instalments, calculated by dividing the recurring cash flow available for debt service by the total debt service due in the same period.

An asset pledged or charged to a lender so that it can be sold to recover the debt if the borrower defaults, thereby reducing the loss the lender would otherwise bear.

The risk of loss arising from failed or inadequate internal processes, people, systems or external events, including fraud, system outages, human error and regulatory penalties.

A technique that applies severe but plausible adverse scenarios to a bank's portfolio and earnings to assess whether its capital and liquidity would remain adequate.

A bank's loans and investments restated according to the credit risk they carry, so that safer exposures count less; the resulting total forms the denominator of the capital adequacy ratio.