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.


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Regulatory Differences Between U.S. and Canadian Banks

Ever since the financial crisis of 2008, Canada’s banking system has been considered one of the most stable in the world – as well as being considered one of the most efficient and innovative systems in the world. In fact, the World Economic Forum recognizes the Canadian banking system as one of the soundest banking [...]

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Tier 1 Leverage Ratio

The Tier 1 leverage ratio is the ratio that is most strongly associated with the true amount of capital that is being leveraged and therefore is a good way to understand a banks current leverage. Tier 1 Leverage ratio defines the connection between a banks adjusted total assets (average total consolidated assets) and it's core [...]

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How Does a Bank Set Interest Rates for Loans?

When you go into a bank looking for a loan, the most important factor that influences how much you will pay over the lifetime of your loan is the interest rate that you are charged. The interest rates for loans that your bank lends at is basically a reflection of the default risk the bank [...]

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Other Intangible Assets

Other intangible assets (excluding goodwill) for banks and credit unions are those assets which are not physically present, yet provide astounding long term benefits to the institution. For intangible assets to be recognized on a bank's balance sheet, it is imperative that the intangible asset must have a legal benefit. The most common form of [...]

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Texas Ratio (Modified)

The Modified Texas Ratio formula has been altered to take into account new rules that force banks to bring onto their balance sheet non-performing government-secured loans at face value, despite the value that they were acquired at or whether they are just being serviced by the bank. These non-performing government-secured loans are added into the [...]

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Roth IRA vs. Traditional IRA

You have options when it comes to your retirement account. In addition to the 401(k) that might be offered at your workplace, you can also open an Individual Retirement Account (IRA). This helps you add a little more to your nest egg each year, boosting your retirement savings. However, it's important to note that you [...]

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Total Shares

The total shares of a credit union, which is also called 'Share Capital', refers to the total amount of shares deposited in a credit union. When people deposit their money in a credit union in the form of savings they are actually buying shares which make them part owner (member) of the credit union. These savings then [...]

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Certificates of Deposit

Certificates of Deposit (CD) are among the class of fixed income investments that are offered at your bank. Certificate of deposits as well as treasury and corporate bonds usually have a fixed interest rate and length of time (3 months, 6 months, 1 year, 3 years) but they are less risky than corporate bonds because [...]

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Tier 1 Capital

A bank's Tier 1 Capital is judged by regulators to represent the bank’s core capital. The FDIC states that: "Tier 1 Capital includes: Common stock, undivided profits, paid-in-surplus; Non-cumulative perpetual preferred stock; Minority interests in consolidated subsidiaries; Minus All intangible assets (with limited exceptions); Identified losses; Deferred tax assets in excess of the limit set [...]

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Tangible Common Equity

Tangible Common Equity (TCE) is Total Equity Capital minus items that are either intangible or not controlled by common shareholders. To calculate the tangible common equity for banks: intangible assets, preferred equity, and minority interest are subtracted from the total amount of shareholders equity (Total Equity Capital). The resulting TCE value gives a conservative estimation of [...]

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