imported>Doug Williamson |
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| The term 'credit' has a number of different related meanings in finance generally, and in banking in particular.
| | ''Floating interest rates - risk management - repricing risk.'' |
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| We will consider them separately in the sections below.
| | Reset risk is a type of repricing risk. |
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| | Repricing risk is the risk of adverse effects resulting from changes in floating interest rates. |
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| __TOC__
| | Reset risk is the additional risk resulting from a relevant reference rate being observed on a single day - and then incorporated into a longer contractual period. |
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| == Repayable financial benefits ==
| | "There is [ ] no ‘reset risk’ in Risk Free Rates (RFRs) since the interest rate coupon will be reflective of market observations over the entire interest rate period, not just on the reset date." |
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| The provision or availability of loans or other repayable financial benefits by a bank or other lender.
| | ''Pieter Bierkens, former chair of Australia's LIBOR reform working group - The Treasurer, December 2023 Issue 4, p30.'' |
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| An entity which lends money, or which provides goods or services on deferred payment terms, is 'extending credit' to its customer.
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| Credit includes borrowings, especially short term ones relating to particular goods or services.
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| == Creditworthiness ==
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| Credit strength, or 'creditworthiness', means an entity's ability and willingness to meet its financial obligations.
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| == Banking ==
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| ==== Credit balances in banking ====
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| In relation to a bank account, a credit balance in the bank's books is one which stands in favour of the customer.
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| The bank owes money to the customer. | |
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| (Contrasted with a debit, or overdrawn, balance.)
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| ==== Credit items in banking ====
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| In banking, a 'credit' also means an item paid into a bank account.
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| == Book-keeping ==
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| In double entry book-keeping, every accounting transaction is recorded with both a Debit entry and a Credit entry in the accounting records.
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| ==== Credit balances in book-keeping ====
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| Credit balances represent liabilities or income.
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| (Debit balances represent assets or expenses.)
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| ==== Credit entries in book-keeping ====
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| In double entry book-keeping a 'credit entry' is one made:
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| *To increase a credit balance; or
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| *To reduce a debit balance.
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| For example, the book-keeping entry to recognise an expense paid in cash is:
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| DR Expense
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| CR Bank
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| If the bank balance is already overdrawn, the CR Bank accounting entry for the payment will increase the overdrawn bank balance (liability) in the balance sheet.
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| But if the bank balance is currently an asset (DR balance in the account holder's records), the CR Bank accounting entry for the payment will reduce the positive bank balance (asset) in the balance sheet.
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| == Taxation ==
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| #A 'tax credit' is an amount which can be used to reduce a tax liability.
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| #Under the UK tax loan relationship rules, a 'credit' is any profit or gain, for example interest income, arising from a loan relationship.
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| == Non-repayable financial benefits ==
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| A 'credit' can also mean any amount in favour the holder of the credit, entitling them either to future goods or services without further payment (or for a reduced payment) or alternatively to a repayment in cash.
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| == See also == | | == See also == |
| * [[Acceptance]] | | * [[Assets]] |
| * [[Availability]] | | * [[Behavioural gap]] |
| * [[Cash terms]] | | * [[Contractual gap]] |
| * [[Credit card]] | | * [[Coupon]] |
| * [[Credit card company]] | | * [[Exposure]] |
| * [[Credit crunch]] | | * [[Floating rate]] |
| * [[Credit enhancement]] | | * [[Gap report]] |
| * [[Credit institution]] | | * [[Gap risk]] |
| * [[Credit note]]
| | * [[Interest]] |
| * [[Credit rating]]
| | * [[Interest gap ]] |
| * [[Credit risk]]
| | * [[Interest rate]] |
| * [[Credit score]] | | * [[Interest rate risk]] |
| * [[Credit union]] | | * [[Liabilities]] |
| * [[Creditworthiness]] | | * [[Liquidity gap]] |
| * [[Daylight credit]] | | * [[Maturity ladder]] |
| * [[Days sales outstanding ]] | | * [[Rate reset]] |
| * [[Debit]] | | * [[Repricing ]] |
| * [[Double entry]] | | * [[Repricing risk]] |
| * [[FECMA]] | | * [[Risk-free rates]] (RFRs) |
| * [[Finance ]] | | * [[Risk management]] |
| * [[ICTF]] | |
| * [[Letter of credit]]
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| * [[Loan relationship]]
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| * [[MCT]]
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| * [[Net credit/debit position]]
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| * [[Open account]]
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| * [[Provisional credit]] | |
| * [[Tax credit]] | |
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| [[Category:Accounting,_tax_and_regulation]] | | [[Category:Financial_products_and_markets]] |
| | [[Category:Identify_and_assess_risks]] |
Floating interest rates - risk management - repricing risk.
Reset risk is a type of repricing risk.
Repricing risk is the risk of adverse effects resulting from changes in floating interest rates.
Reset risk is the additional risk resulting from a relevant reference rate being observed on a single day - and then incorporated into a longer contractual period.
"There is [ ] no ‘reset risk’ in Risk Free Rates (RFRs) since the interest rate coupon will be reflective of market observations over the entire interest rate period, not just on the reset date."
Pieter Bierkens, former chair of Australia's LIBOR reform working group - The Treasurer, December 2023 Issue 4, p30.
See also
