Glossary
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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.
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In the Group of Seven (G7) and the Group of Twenty (G20), countries with similar economic interests meet in informal advisory sessions to make joint decisions and share new impetus. The G7 comprises Canada, France, Germany, Italy, Japan, the United Kingdom and the Uni-ted States of America. The Deutsche Bundesbank is represented by its president in the discussions held by G7 finance ministers and central bank governors. The members of the G20 are the G7 plus the EU, Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, South Korea and Turkey. It thus represents around two-thirds of the global population. The finance ministries and central bank governors of these countries are responsible for their membership of the G20.
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The General Council is a body of the European Central Bank (ECB) connecting the Eurosystem and the central banks of EU member states which have not (yet) adopted the euro. The General Council comprises the ECB's President and Vice-President and the governors of the national central banks (NCBs) of all EU member states, and normally meets once a month. Its tasks include making preparations for expanding Economic and Monetary Union (EMU) and for harmonising statistical information. It has no monetary policymaking powers. The General Council will exist as long as there are still EU member states which have not adopted the euro as their currency.
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The German Banking Act (Kreditwesengesetz) regulates the provision of those banking and financial services for which a licence is required and constitutes the legal basis for the prudential supervision of credit and financial services institutions by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, or BaFin) and the Deutsche Bundesbank. The provisions of the Act cover not only licensing requirements but also the protection of liquidity and savings deposits as well as caps on bank employees' variable remuneration. The Banking Act contains numerous reporting obligations to be met by supervised institutions and requires banks to have a proper business organisation. It is augmented by the Solvency Regulation (Solvabilitätsverordnung), the Liquidity Regulation (Liquiditätsverordnung) and the Large Exposures Regulation (Gross- und Millionenkreditverordnung).
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Further inforamtion
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The German Banking Industry Committee is the joint committee operated by the central associations of the German banking industry. It emerged from the Central Credit Committee in August 2011 and continues its work. This includes shaping opinion and building consensus, especially in matters relating to banking legislation and banking policy as well as practical banking issues. It also develops standards for payments, including card payment systems. The German Banking Industry Committee has no independent legal status and is made up of the Federal Association of German People’s Banks and Raiffeisen Banks (Bundesverband der Deutschen Volksbanken und Raiffeisenbanken), the Association of German Banks (Bundesverband deutscher Banken), the German Savings Banks and Giro Association (Deutscher Sparkassen- und Giroverband), the Association of German Public Sector Banks (Bundesverband Öffentlicher Banken Deutschlands) and the Association of German Pfandbrief Banks (Verband deutscher Pfandbriefbanken). Leadership of the committee changes hands every year, alternating between the first three associations.
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The Federal Republic of Germany Finance Agency (Bundesrepublik Deutschland Finanzagentur GmbH) – known in short as the German Finance Agency – is the central service provider for the federal government borrowing and debt management. It was established on 19 September 2000 and its headquarter is in Frankfurt am Main. The German Finance Agency is wholly owned by the Federal Republic of Germany, which is represented by the Federal Ministry of Finance. The German Finance Agency has been mandated with tasks previously carried out by the Federal Ministry of Finance, the Deutsche Bundesbank and the Federal Securities Administration. The German Finance Agency operates on the financial markets solely in the name of and for the account of Federal government. When issuing securities, it works closely with the Deutsche Bundesbank. In 2018, the Financial Market Stabilisation Fund (SoFFin) was integrated into Finance Agency from the Federal Financial Market Stabilisation Agency (FMSA).
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The German Financial Stability Committee (G-FSC) is a national body that coordinates and enhances cooperation in the field of macroprudential policy. It performs the statutory mandate assigned to it under the Financial Stability Act (Finanzstabilitätsgesetz). The Federal Ministry of Finance, the Deutsche Bundesbank and the Federal Financial Supervisory Authority (BaFin) each have three voting representatives on the Committee, while the Chief Executive Director of BaFin’s Resolution Directorate also attends meetings as an advisory, non-voting member. The Committee is a forum for discussing risks to financial stability based on analyses prepared by the Bundesbank and the insights that BaFin and the Bundesbank gain from supervisory activities. Based on its findings, the Committee can issue warnings or recommendations to public sector entities in Germany. It also deliberates on how warnings and recommendations issued by the European Systemic Risk Board (ESRB) should be treated and reports annually to the German parliament (Bundestag). In the event of a financial crisis, it enhances cooperation among the institutions represented on the G-FSC.
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Giro network is a term used in cashless payment systems and refers to an association of banks from the same banking groups, within which cashless payments between the banks involved are settled and booked. If a payment leaves a bank's own giro network, it will be settled between the connected giro networks of the participating banks.
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A bank is deemed to be a global systemically important bank (G-SIB) if the difficulties it runs into or its collapse would severely impair the proper functioning of the global financial system and the real economy. Using certain criteria, the Financial Stability Board (FSB) classified around 30 banks around the world as systemically important in global terms. This classification is reviewed on an annual basis. Among other things, these G-SIBs are subject to stricter capital requirements so as to better absorb any losses. Moreover, additional supervisory requirements may apply to them, eg the obligation to draw up recovery and resolution plans. G-SIBs are a subgroup of global systemically important financial institutions (G-SIFI).
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A financial institution is deemed to be a global systemically important financial institution (G-SIFI) if the difficulties it runs into or its collapse would severely impair the proper functioning of the global financial system and the real economy. For this reason, G-SIFIs are subject to stricter rules and particularly close supervision by the supervisory authorities. In terms of the terminology used by the Financial Stability Board (FSB), G-SIFI is the generic term for global systemically important banks (G-SIB), global systemically important insurers (G-SII), non-bank non-insurer global systemically important financial institutions (NBNI G-SIFI; these include certain investment companies) as well as financial market infrastructures (FMI; these include certain central counterparties and payment systems).
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The CRD IV/CRR and the Financial Stability Board use the acronym G-SII in different ways. Pursuant to the regulations on minimum capital requirements for banks (CRD IV/CRR), EU member states are required to identify global systemically important institutions (G-SII) on the basis of certain criteria. These institutions are required to hold additional capital so as to better absorb potential losses. The term "institutions" used in the CRD IV/CRR refers mainly to banks and similar financial institutions. By contrast, the Financial Stability Board uses global systemically important financial institution (G-SIFI) as a generic term for a variety of financial institutions, including banks, insurers, investment companies and financial market infrastructures. In terms of the terminology used by the Financial Stability Board, the acronym G-SII stands for global systemically important insurer.
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An insurer is deemed to be a global systemically important insurer (G-SII) if the difficulties it runs into or its collapse would severely impair the proper functioning of the global financial system and the real economy. Based on the criteria of size, complexity and interconnectedness, the Financial Stability Board (FSB) has classified nine insurers around the world as systemically important in global terms to date. This list is reviewed on an annual basis. These G-SIIs are subject to more extensive supervision and, from 2019 onwards, to a capital surcharge. In terms of the terminology used by the European Directive on minimum capital requirements for banks (CRD IV/CRR), the acronym G-SII stands for global systemically important institution.
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The gold standard is a monetary system in which the value of a unit of currency is based on a fixed quantity of gold. This can take the form of gold coins being used directly as a unit of currency or of a government guaranteeing to exchange cash for gold at a fixed rate or to exchange cash for another currency that uses a gold standard.
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The Governing Council of the European Central Bank (ECB) is the main decision-making body of both the ECB and the Eurosystem, and is notably responsible for formulating monetary policy in the euro area. It consists of the ECB's President and Vice-President, the four other members of the Executive Board as well as the governors of the national central banks of the euro-area countries. All members belong to the Governing Council in a personal capacity, ie they decide not as representatives of a given country or institution but based on their own personal judgement.
The primary objective of the ECB Governing Council is to maintain price stability in the euro area. Normally convening twice a month, the Governing Council is chaired by the ECB President, who is its highest representative and spokesperson. Under the Treaty, EU policymakers can attend meetings of the ECB Governing Council but cannot vote on its decisions. Article 284 TFEU states that the President of the European Council (as well as a Commission member) can participate in Governing Council meetings and also raise certain topics, though it is common for the Eurogroup President rather than the Council President to attend. The Eurogroup President and a member of the European Commission can also attend meetings but have no voting rights.
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Green bonds are fixed-income securities designed to fund activities that meet specific environmental standards. These standards mostly refer to external frameworks (e.g. the UN’s Sustainable Development Goals) and aim to mitigate or prevent harms to the environment and the climate. Green bonds are a key instrument of green finance.
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The term green finance describes a sustainable financial system which also pursues environmental and socio-political objectives. Green finance became more of a focus with the Paris climate agreement of 2015, under which national targets for carbon emissions were agreed. In order to achieve these objectives, there has to be greater investment in green industries, projects and technologies. The need to raise funds for this, inter alia by issuing innovative financial products such as green bonds, represents one aspect of green finance. On the other hand, green finance deals with the costs and risks for the financial sector posed by climate change and the desired transition to a low-carbon economy. For instance, business models in the field of petroleum extraction might be called into question. This process could lead to a distortion of market prices in the securities market and potentially have an adverse impact on the level of risk in corresponding credit portfolios in the banking sector, which, in turn, would affect the earnings and equity of individual institutions. The insurance sector will likewise be affected by climate change if the number of insurance losses increases due to the growing frequency of extreme weather events. As a result, climate change and the transition to a more sustainable economic system have a direct impact on financial stability and the financial sector.
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The green finance dashboard is a system of indicators which uses a number of data items, most of them publicly available, to provide a quick overview over green finance in Germany and the EU and its developments over the last few years. It distinguishes financial, real economic and climate-related indicators.
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Gross domestic product (GDP) is a key measure of the economic performance of a national economy (or economic region) within a certain period of time. It includes all goods and services produced within the geographical borders of an economy in a given period and valued at market prices, apart from intermediate goods used to produce other goods and services. Real GDP, which is measured not at current prices but at constant prices for a given base year, is usually used to compare an economy’s performance over time.
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Gross national income, known as gross national product until 1999, is used to measure a country’s aggregate economic performance within a certain period of time. Unlike gross domestic product, gross national income includes not only the goods and services produced domestically but also the economic output of residents (natural persons and legal entities permanently domiciled in a particular country) domestically and abroad (resident concept). In unadjusted terms, gross national income equals gross domestic product plus income receipts by residents from the rest of the world minus income payments by residents to the rest of the world.
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The term used for gross national income (GNI) until 1999.
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A commitment once made by the United States to buy or sell US dollars for gold at a fixed rate of US$35/troy ounce of gold (gold parity) at all times, as part of the gold exchange standard under the Bretton Woods system.