@BGOV will regularly feature background on the development of Bloomberg Government Briefings from the analysts and reporters behind them. Here, senior finance policy analyst Cady North shares a few terms from her Briefing, “Deciphering Dodd-Frank: A Regulatory Glossary” (subscription required).

The Financial Crisis of 2008 changed the regulatory lexicon of Washington with the passage of the 849-page Dodd-Frank law. Hundreds of obscure financial terms, such as Tier 1 capital, living wills and too-big-to-fail banks, became part of the policy debate.

My Bloomberg Government Briefing defines many of the key terms introduced or discussed in Dodd-Frank and the 48 final regulations to date. Below are a few of the more interesting examples:

CAMELS

Rating given to banks based on capital adequacy, asset quality, management practices, earnings performance, liquidity and sensitivity to market risk. A score of 1 means least regulatory concern, while a score of 5 means the most regulatory concern.

Haircut

In computing the value of assets for purposes of capital, segregation, or margin requirements, a haircut is a percentage reduction from the stated value (e.g., book value or market value) to account for possible declines before assets can be liquidated. Dodd-Frank requires the FSOC to study whether secured creditors should receive 100 percent of their investment or a haircut in the event of a bank failure.

Naked Swap

Purchasing a swap instrument without holding an equal and opposite position in the underlying asset/instrument. For instance, holding a credit default swap in Company X, without owning a share of bond debt issued by the company.

Swap Dealer

An entity that provides swaps services to customers, offering to assume the opposite position of its customers in a swaps transaction or accommodates demand for swaps. Under proposed derivatives regulations, swap dealers must report position and price data to regulators, centrally clear and execute swaps on an exchange and set aside margin to cover potential losses on the contract.

Zombie Bank

A financial institution with negative net worth that continues to operate through federal assistance.

 

Cady North has over nine years experience in legislative affairs and public policy at both the state and federal level. Prior to joining the BGOV finance team she was the Senior Manager of Government Affairs for Financial Executives International (FEI), a trade association for CFO’s, Treasurers, and Controllers of Fortune 500 companies. There, she led advocacy efforts on a variety of corporate finance issues including FEI’s outreach to Congress on the Dodd-Frank Act. Cady can be reached at cnorth5@bloomberg.net.

 

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