What will I find in this section?
Technical terms, unfortunately, cannot always be avoided – particularly when it comes to complex topics such as monetary policy. This is why we have compiled a glossary with a wide range of terms, arranged in alphabetical order and each with a short explanation.
- ABCP (Asset-backed commercial paper)
- ABS (Asset-backed security)
- ABSPP (Asset-Backed Securities Purchase Programme)
- Act to Modernise Accounting Law (BilMoG)
- Annuity loan
- APP (Asset purchase programme)
- Asset-backed commercial paper (ABCP)
- Asset-Backed Securities Purchase Programme (ABSPP)
- Asset purchase programme (APP)
- Automatic stabilisers
- Autonomous factors
Asset-backed security (ABS)
An asset-backed security (ABS) is a security that is backed by credit claims such as building loans, auto loans or credit card receivables. An ABS arises when a bank sells such assets to a special-purpose vehicle, which finances its operations through the sale of those asset-backed securities. The special-purpose vehicle essentially uses the cash flows from the underlying credit claims to make interest and principal payments to investors. Issuers often subdivide the securities into several classes – also known as tranches – with varying levels of risk. In the event of a default on payments from the underlying asset pool, losses are not distributed evenly but rather according to a specific order in between the tranches. The initial losses are absorbed by the higher-risk tranches, for which neither interest nor principal payments are then made. If this is sufficient to cover the losses, the interest and principal payments remained unchanged for holders of the lower-risk tranches.