Knowyourbank.com’s financial education posts are focused on helping our readers better understand credit union and banking terms, financial ratios and instruments. The educational posts share explanations for sometimes difficult or complex terminology.
A Non-performing loan is a loan where the borrower has failed to make the agreed upon scheduled payments based on the loan agreement. In simple terms, a loan that is nearing a default or is already defaulted is referred to as a non-performing loan. After the loan reaches the non-performing state, the probability of its [...]
Two of the options you have when sending money electronically are ACH transfer and wire transfer. Deciding which to use most often depends on how quickly you want the money to 'arrive' at its destination. What is an ACH Transfer? Many of us are familiar with automated clearing house (ACH) transfers in the form of [...]
One of the main types of insurance that you are expected to buy is homeowners insurance (homeowners policy). If you buy a home with a mortgage you will have to get homeowners insurance, and even if you buy a home with cash you should insure it. Homeowners insurance is designed to protect you from the [...]
When considering the health of your bank, one of the items to review is the number of non-performing loans that appear on the bank’s balance sheet. Non-performing loans can cause problems for banks, and even threaten their overall health. What are Non-Performing Loans? Non-performing loans are those that borrowers are no longer making payments on. [...]
The Net Worth Ratio is a measure of the capital strength of a credit union. The formula is calculated below: Net Worth (Retained Earnings) / Total Assets Where the numerator in the formula is retained earnings (this consists of regular reserves and undivided earnings of the credit union) and the denominator is the credit unions [...]
In our last article we covered the differences between getting pre-approved and pre-qualified for a mortgage. If you're actively looking for a mortgage pre-approval is what you should be looking for. Below we cover the steps for getting pre-approved and what you need to know to increse your chances of getting approved. Buying a home [...]
Tier 1 Capital Ratio (also called the Tier 1 Risk Based Capital Ratio) divides a bank's core equity capital by the total amount of its risk weighted assets (RWA). It is one of a handful of ratio that help bank regulators understand the capital adequacy of a bank.
The idea of Risk Weighted Assets is to determine the Capital needs of a bank based on the level of riskiness of the assets that the bank possesses . If a bank holds riskier assets than Capital requirement will also be higher and vice versa. It is calculated simply by multiplying the asset with a [...]
What is a Credit Default Swap (CDS)? Credit Default Swaps (CDS) are contracts that transfer credit product (fixed income products/sovereign and corporate bonds) risk between two parties. The seller of CDS protection (Sold Protection) takes on the risk of having to pay the notional amount of the CDS if the credit product that is tied [...]
It is the trend analysis of the Texas Ratio. The Texas Ratio Trend takes into account the change in a bank or credit unions Texas Ratio over a certain period of time (our Texas Ratio Trend measures quarter to quarter change) and shows whether the trend is rising (is bad) or declining (is good). The [...]
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