A bank bail-in is a financial rescue procedure in which a failing bank’s creditors and depositors are forced to bear some of the losses incurred by the bank rather than taxpayers or the government. This means that if a bank is in danger of failing, it will use its own funds to recapitalise itself rather than rely on external funding.
A bank bailout refers to a situation where the government or other financial institutions provide financial assistance to a troubled or failing bank to prevent it from collapsing. This assistance can come in the form of loans, guarantees, or direct capital injections.
Common Equity Tier 1 (CET1) capital ratio is a measure of a bank’s financial strength and ability to withstand financial stress. It is one of the components of the Basel III capital framework, which is a set of international standards for bank capital adequacy, stress testing, and liquidity risk management.
Discount window borrowing is a lending facility a central bank provides to commercial banks that need short-term funding to meet their liquidity needs. The discount window is a tool that allows banks to borrow money directly from the central bank, typically at a discount rate that is lower than the prevailing market rate.
Fractional reserve banking (FRB) is a regulatory system in which banks hold at least a specific fraction of their customers’ deposits in reserve and lend out the rest. When a bank accepts customer deposits, it must keep a certain percentage of those deposits in reserve, typically held at that country’s central bank.