In the banking industry, safe custody can refer either to an account in which securities holdings (shares, bonds, mutual fund shares) are registered or a physical safe deposit box at a bank. With a securities account, the bank knows the contents of the account and, besides safekeeping, also performs administrative functions such as the redemption of interest or dividend coupons.

The safe custody and administration of securities for third parties requires a licence pursuant to the German Banking Act (Kreditwesengesetz).

The satellite hologram is an additional security feature on €100 and €200 banknotes. When tilted, small € symbols move around the value numeral at the top of the hologram stripe. These € symbols become clearer under direct light.

A savings bank (Sparkasse) is a public credit institution that is generally municipally owned and which conducts virtually all types of banking business. Section 40 of the German Banking Act places the term Sparkasse under particular protection. During the financial crisis, savings banks proved to have a risk-repellent and thus stabilising effect on the financial system as a result of their regional ties, broad deposit structure and often small size.

A savings bond is a paper issued under a variety of names by nearly alll banks to raise medium-term and long-term funding. Savings bonds occupy the middle ground between savings deposits and negotiable debt securities. In legal terms, a savings bond is a deposit.

A savings is a deposit which the depositor invests for an extended but undetermined period of time. Depositors who would like to withdraw all their money usually have to observe a specific notice period agreed on at the time the investment was made. Savings deposits are protected by law with a statutory notice period of three months. Banks hold savings deposits in savings accounts. Savers are often given a special certificate for their savings deposit, such as a savings account passbook. Savings deposits must not be used for payments, therefore, the interest rate is usually higher than that on sight deposits and usually variable, i.e. it is adjusted to the general interest rate level at certain intervals.

When demand exceeds supply in a tender procedure, a scale-back distributes the available allotment volume to the bidders according to a specific key. In a fixed rate tender, all bids are allotted at a single allotment ratio that is derived from the planned allotment volume divided by the total bid amount. In a variable rate tender, only bids at marginal interest rates, i.e. the lowest interest rates still being accepted, are scaled back. Bids at higher interest rates are allotted in full.

Seasonal adjustment is a statistical method for filtering out recurrent seasonal influences from a time series in order to make cyclical and trend economic developments more clearly visible. Moreover, the seasonal adjustment method can be used to eliminate calendar effects, if known. These include, for example, the days on which bank and public holidays fall, which change from one year to the next, thus affecting economic activity in the individual months and quarters.

Second-round effects are the reactions of market participants to first-round effects, ie to a specific earlier increase – or decrease – in the prices of individual goods or services. The focus here is on the reaction of the wage-setting parties. If, for example, in the wake of an increase in the price of crude oil, the unions aim to regain their member's purchasing power, which was reduced by the increase, to its original level by way of a major wage increase, there is the danger of a price-wage spiral. In such a case, rising prices and wages could drive each other up, potentially resulting in further accelerating inflation. In a situation like this, there is also the danger of increased inflation expectations, which in turn makes it more difficult to restore price stability. On the other hand, if inflation expectations remain at a stable, low level, this can help to keep general inflationary pressure in check. Monetary policymakers typically aim to prevent second-round effects by using monetary policy instruments.

The secondary income is an item in the current account. It comprises regular unrequited cross-border payments. Examples include payments sent by foreigners working in Germany to their home countries. Payments by general government to international organisations and development aid payments are also recorded under secondary income. Secondary income has to be distinguished from primary income.

The part of the capital market that is downstream from the primary market. Primary investors who purchase newly issued securities on the primary market can sell them on to new investors on the secondary market. Exchanges are the most important secondary markets. The secondary market facilitates the exchange of capital between investors. Furthermore, supply and demand on the market form prices and establish the value of securities. It is thus a market with price adjustment.

Securities settlement represents the conclusion and fulfillment of a stock exchange transaction between two or more parties, i.e. a trading object is exchanged for a cash countervalue. Resulting obligations can be redeemed either in central bank or book money. Settlement is normally preceded by a clearing process. As of mid-2015, users throughout Europe will be able to take advantage of the Eurosystem's TARGET2-Securities (T2S), a harmonised and centralised facility for securities settlement using central bank money. The idea behind T2S is to unite central bank money settlement and securities settlement on a single platform.

A securities settlement system (SSS) is a computerised system for the settlement of exchange-traded securities transactions. Centralised settlement through a securities settlement system can generate efficiency gains for the economy as not every trading partner is required to set up its own settlement infrastructure.

The Securities Trading Act (Wertpapierhandelsgesetz – WpHG) governs securities trading and provides for the supervision of investment services enterprises to protect investors. The WpHG lays down rules for a significant portion of the notification obligations applying to listed companies. However, some of the obligations relate to shareholders, too. Amongst its various provisions are rules relating to listed companies and the obligation to declare holdings of voting rights. It also governs the exercising of rights attached to securities and imposes obligations in terms of conduct, organisational matters and transparency for investment services enterprises. In addition, it covers the monitoring of company financial statements and the publication of financial reports. The WpHG also requires investment services enterprises to deliver advice which is properly suited to the investment and investor concerned, and to collect and document information from individual customers concerning their experience, investment objectives, financial circumstances and risk tolerance. Responsibility for the WpHG rests with the Federal Financial Supervisory Authority (BaFin).

Securitisation is the practice of, for example, a bank selling certain assets on its balance sheet to a special-purpose vehicle, which then bundles the assets into tradable securities to sell on to investors. Selling assets enables the bank to lower its risk exposure and obtain liquidity. The payment claims arising from the assets (interest and principal) ultimately go to the purchasers of the securities. Examples of securitised assets are consumer and corporate loans, auto loans, leases, credit card receivables and student loans (asset-backed securities, or ABS). Securities backed by mortgage receivables are called mortgage-backed securities (MBS).

Securitises a right to an asset, e.g. equity shares, debt securities (bonds) and investment fund shares. Securitisation makes it easier to trade these rights to assets. For many classes of securities there are institutionalised markets.

Security features are components of euro banknotes that allow for unequivocal identification of their authenticity and should thus prevent illegal counterfeits. These security features include the special paper used, the fluorescent fibres in the paper, a see-through number, the watermark, several tangible images, the security thread, a portrait hologram and a satellite hologram in the hologram stripe and the glossy stripe. In addition, larger denominations of the first euro series included a colour-changing element. This element was developed into the emerald number in the new Europa series, in which it is used for all denominations.

Security features are components of euro coins that allow for unequivocal identification of their authenticity and should thus prevent illegal counterfeits. These features include the raised contours of the coin images,the two colours in the one and two euro coins, the inscription on the edge of the coin, the low magnetisation of the one and two euro coins and the high magnetisation of the one, two and five cent pieces.

The Securities Markets Programme (SMP) is the name given to a Eurosystem programme to purchase bonds – especially sovereign bonds – on the secondary markets. The programme, adopted by the ECB Governing Council in May 2010, was replaced by Outright Monetary Transactions (OMT) in September 2012. The ECB Governing Council established the SMP with the aim of counteracting disruptions in the monetary policy transmission mechanism. Owing to the ban on monetary financing, no purchases were made on the primary market. The last purchase under the SMP was made in February 2012. At its peak, the programme's volume totalled around €210 billion. The Eurosystem central banks that purchased sovereign bonds under this programme will hold them to maturity. The programme initially envisaged that central bank money created from the purchase of securities would be “sterilised”, in other words, this money would be removed from the money market. To achieve this, the Eurosystem offered commercial banks the possibility to invest central bank money at the ECB as a time deposit. Sterilisation was discontinued in mid-2014.

The security thread is a security feature of euro banknotes. Held against the light, it is visible as a dark stripe with light writing in the middle of the banknote.

A security feature of euro banknotes. When held up to the light, segments of a pattern in the top-left corner on the front of the note join with segments of the pattern on the reverse to show the complete value numeral of the banknote.

The term "seigniorage" originally referred to the profit the holder of minting rights ("seigneur") could generate from minting coins. The seigniorage was derived from the difference between the raw material and production costs, and the face value of the coins, or from a fee paid by private individuals to the holder of minting rights for permission to mint coins from their own precious metals. Despite changes in minting and minting rights, the term seigniorage is still in use today. However, its definition has become vaguer and broader in scope, sometimes being referred to as the profit generated by a central bank when it creates money and sometimes to the profit a central bank makes in general.

The SEPA-Clearer is a Deutsche Bundesbank-operated payment system for the clearing and settlement of domestic and cross-border interbank transactions in SEPA format. Using the Bundesbank's own dedicated payments platform, the Retail Payment System (RPS), credit institutions can effect credit transfers and direct debits via the SEPA-Clearer, which is linked to the TARGET2 platform as an ancillary system. All payments are settled through accounts maintained on the TARGET2 platform.

Unlike universal banks, banks with separated banking functions are not permitted to carry out both lending operations and securities trading. The aim of the separate banking system is to avoid conflicts of interest in the two areas of business.

The services sub-account is part of the current account within the balance of payments. Cross-border service flows (mainly travel) are recorded in this account. If receipts exceed expenditure, there is said to be a surplus in the services sub-account. If expenditure is greater than receipts, there is said to be a deficit in the services sub-account.

The Financial Stability Board (FSB) defines shadow banks as financial market players that engage in activities and perform functions similar to those of banks (particularly in the lending process) but are not banks themselves, meaning that they are not subject to banking regulation. Regulated credit institutions can outsource operations to specialised shadow banks and thus – perfectly legally – circumvent regulatory measures. As the financial crisis has shown that systemic risks can emanate from the shadow banking system, efforts are now underway to regulate shadow banks at both the global and EU level. In principle, shadow banks do not belong to the semi-legal or illegal "shadow economy". However, – like elsewhere in the economy – there are also shadow banks that operate semi-legally, in a legal grey area or illegally.

The sale of borrowed assets that a seller does not own. A distinction is made between transactions covered by a securities lending agreement (short sale) and those without similar safeguards (naked or uncovered short sale).

In Single Supervisory Mechanism (SSM) jargon, a significant institution is a bank to which such importance is attached that it is directly overseen by the European Central Bank (ECB). The following are considered “significant”: the three largest banks in a participating member state, banks in receipt of direct EFSF/ESM assistance and banks with total assets in excess of €30 billion or 20% of national gross domestic product (with a balance sheet total of at least €5 billion). In exceptional cases, the ECB can declare significant a bank operating across national borders. Overall, the ECB has defined around 125 banks, which together have banking assets amounting to over 80% of the total assets on the aggregated balance sheets of all supervised credit institutions, as significant. Direct supervision is microprudential, ie institution-specific, in nature, while “systemically important financial institutions” are subject to macroprudential, ie system-specific, oversight.

The Single Euro Payments Area (SEPA) is an area in which cashless euro payments are governed by a set of uniform standards. In addition to all member states of the European Union (EU) and the states of the European Economic Area (EEA) Iceland, Liechtenstein and Norway also Switzerland, Monaco, San Marino, Andorra, the Vatican City State and the United Kingdom belong to the SEPA area. As regards retail payments, SEPA no longer makes a distinction between national and cross-border euro payments; this also applies with regard to fees within the EU and the EEA. The standardised SEPA instruments (SEPA credit transfers, SEPA direct debits) can be employed throughout the entire SEPA area. When using SEPA instruments to make payments within the EU or the EEA, only the international bank account number (IBAN) is required and not the account number and the bank sort code.

The Eurosystem's single list of collateral details the assets that can be used as collateral for liquidity-providing operations. Both marketable assets (e.g. debt securities) and non-marketable assets (e.g. credit claims) are accepted. Both types of asset must meet uniform credit standards. No distinction is made between marketable and non-marketable assets with regard to the quality of the assets and their eligibility for the various types of Eurosystem monetary policy operations, except that non-marketable assets are not used by the Eurosystem for outright transactions.

The Single Resolution Board (SRB) is a component of the Single Resolution Mechanism (SRM),the banking union's second pillar. It is also referred to as the "Board" in the SRM Regulation. The SRB is an independent European agency with legal personality. It decides on the resolution of all banks which are supervised directly by the European Central Bank as well as banks with subsidiaries in other member states taking part in the Single Supervisory Mechanism (SSM). It has comprehensive resolution powers and cooperates closely with supervisory and national resolution authorities. The SRB is composed of the chair, vice-chair, four other permanent members and representatives of the national resolution authorities (plenary session). For issues pertaining to the resolution of a bank, only the full-time members and the representatives of the bank's member state take part (executive session). The plenary session decides on policy issues as well as individual resolution cases where these involve the use of the Single Resolution Fund (SRF) above a threshold of €5 billion.

Beginning in 2016 the national resolution funds have largely been replaced by the Single Resolution Fund (SRF) in all member states participating in the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM). Together with the Single Resolution Board (SRB), it is the second core element of the Single Resolution Mechanism (SRM) and serves as a second line of defence when it comes to funding the resolution of an institution. The idea is for shareholders and creditors to primarily bear the burden of bankruptcy, for example through a bail-in, instead of the tax payer. The target fund volume is at least 1% of the covered deposits of all the institutions authorised in the member states (around €80 billion), and this volume should be reached by the end of 2023. The fund is financed by bank levies.

The Single Resolution Mechanism (SRM) is the pillar of the European banking union that is responsible for the recovery and resolution of credit institutions. The SRM is based on the Bank Recovery and Resolution Directive (BRRD) and augments the Single Supervisory Mechanism (SSM). The SRM establishes a framework for the orderly resolution of failed banks, even across national borders. As a lesson learned from the financial crisis that began in 2007, it seeks to revitalise the key market economy principle of being liable for one's own losses for credit institutions as well. The SRM is responsible for all euro-area countries, as well as for those EU member states that opt in. The establishment of the Single Resolution Board (SRB), an EU agency with legal personality, is at the heart of the SRM's institutional framework. If the SRM decides to resolve an institution, the European Commission and European Council have 24 hours to object to the resolution scheme (non-objection procedure). The SRM is augmented by the Single Resolution Fund (SRF), which can provide the financial resources needed for resolution. 

In the context of European banking supervision, the Single Rulebook is the common set of rules that harmonises banking supervision law in Europe. It provides a unified legal framework for the participating countries and prevents regulatory arbitrage. The Single Rulebook encompasses a host of legislation including the Capital Requirements Directive IV and the Capital Requirements Regulation. It provides the legal basis for the European banking union and thus, in particular, for the Single Supervisory Mechanism and the Single Resolution Mechanism as well.

The Single Supervisory Mechanism (SSM) is the pillar of the European banking union that is responsible for banking supervision. In organisational terms, the SSM has been placed under the auspices of the European Central Bank (ECB) with its headquarters in Frankfurt am Main. All euro-area states participate in the banking union, as do any EU countries which opt in. From November 2014, the SSM will directly supervise the roughly 120 “significant” credit institutions in the participating countries; these institutions account for over 80% of the total assets of all institutions under supervision. Furthermore, the SSM is also responsible for the supervision of all the other credit institutions in SSM countries; however, these institutions are directly supervised by national competent authorities (NCAs) as a general rule. Despite this, some decisions (e.g. authorisation of a credit institution or withdrawal of such authorisation) are always made by the SSM, irrespective of the credit institution in question. The SSM ensures that rules are interpreted and applied consistently across all participating countries. The supreme governing body of the SSM is the Supervisory Board, which reports to the ECB Governing Council. The Supervisory Board's members consist of ECB representatives and representatives from the supervisory authorities of the countries that participate in the SSM. In Germany's case, these representatives are from the Federal Financial Supervisory Authority (BaFin), which has voting rights, and the Deutsche Bundesbank.

Six pack is the name for a package of five EU regulations and one EU guideline which came into force in December 2011. The six pack regulations firstly tighten the current Stability and Growth Pact through quasi-automatic sanctions, and secondly, they form the legal basis for the new macroeconomic imbalances procedure.

SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a cooperative institution established by banks, which operates a network for the exchange of electronic messages, especially payment messages. A SWIFT payment message is merely a payment instruction; the payment is settled via a payment system or correspondent banking connection.

Solvency II – much like to Basel II – regulates capital requirements, risk management and disclosure requirements for the EU’s insurance sector. The Directive became applicable in 2016.

The Regulation Governing the Capital Adequacy of Institutions, Groups of Institutions and Financial Holding Groups (Solvency Regulation (Solvabilitätsverordnung)) was recast in 2014. Since then, it has primarily governed the supervisory review and evaluation of banks’ Pillar 1 internal models, which they use – subject to supervisory review – to determine their regulatory capital requirements.

Special drawing rights (SDRs) are book money created by the International Monetary Fund (IMF), which counts as part of international currency reserves. The IMF can allocate SDRs to its members in order to avert a global lack of liquidity. The value of an SDR corresponds to the market value of a currency basket consisting of the five most important world currencies (US dollar, euro, renminbi, yen and pound sterling) in weighted form. Only the IMF, the monetary authorities of the member states, and other specifically authorised official agencies can use the SDR "artificial currency" for financial transactions amongst each other.

A special purpose acquisition company (SPAC) is a company with no commercial operations that is founded solely to raise capital through an initial public offering (IPO). In a second step, a SPAC strives to acquire an existing company that is not yet listed on the stock exchange. The initiator responsible for the SPAC usually has a period of between 12 and 24 months to achieve this. The aim of a SPAC is to be able to list comparatively small companies on the stock exchange in a faster and less costly process. In most cases, investors are offered specific “units” consisting of one common share and the option of acquiring additional shares (subscription rights) in the company that is being taken over. The investors’ return is mainly based on the price gain of the respective common share.A special purpose acquisition company (SPAC) is a company with no commercial operations that is founded solely to raise capital through an initial public offering (IPO). In a second step, a SPAC strives to acquire an existing company that is not yet listed on the stock exchange. The initiator responsible for the SPAC usually has a period of between 12 and 24 months to achieve this. The aim of a SPAC is to be able to list comparatively small companies on the stock exchange in a faster and less costly process. In most cases, investors are offered specific “units” consisting of one common share and the option of acquiring additional shares (subscription rights) in the company that is being taken over. The investors’ return is mainly based on the price gain of the respective common share.

A special purpose vehicle (SPV) is a legal entity that is established for a particular purpose, for example structured finance. A special purpose vehicle is established between a debtor and a creditor for the purpose of legally shielding the debtor from the creditor in case of payment difficulties.

A specialised bank is a bank with specialised areas of activity, as opposed to a universal bank. Specialised banks include mortgage banks, building and loan associations, special-purpose banks and other specialised banks. Mortgage banks grant long-term loans for real estate construction or to fund public projects. Building and loan associations collect money from savers and grant loans to their other savers according to a distribution plan. Special-purpose credit institutions such as the Reconstruction Loan Corporation support long-term financing of investments. Other specialised banks are mostly guarantee banks and housing enterprises with savings facilities. 

In stock market speak, the term “spread” refers in general to a difference in prices. In securities trading, the spread is the difference between the purchase and selling price that the trader asks for a security at a given point in time. In the bond market, the spread is the difference between the yield on a certain bond and the reference rate. For bonds, the spread is higher the lower the credit rating of the bond issuer is. The difference in the valuation of similar underlying assets, which differ in one aspect – such as term or currency - is also known as a spread.

A squeeze-out involves a majority shareholder exercising his right to exclude minority shareholders from a public limited company by obliging them to give up their shares in return for a cash compensation. This is permitted under the German Companies Act (Aktiengesetz) if a shareholder holds at least 95% of the public limited company's share capital either directly or through dependent enterprises.

SSM countries are all countries that participate in the Single Supervisory Mechanism (SSM) under the aegis of the European Central Bank (ECB), and are thus subject to banking supervision at the European level. All euro-area states automatically participate in the SSM, as do any EU countries which are not part of the euro area but opt to enter into close cooperation with the ECB. In addition, the ECB and the national competent authorities (NCAs) of EU member states which have not introduced the euro will sign a memorandum of understanding outlining their cooperation in connection with the exercise of supervisory tasks.

The Stability and Growth Pact is a rule-based framework for the coordination and monitoring of national fiscal policies in the EU Member States. The Pact is based on a decision by the European Council in June 1997 and two regulations issued by the Council in the same year. It has been amended on numerous occasions since then. Under the Pact, the EU countries committed to maintain budgetary discipline permanently and sustainably even after replacing their national currencies with the single currency - the euro. A significant element of the Pact is that the EU countries should aim for fiscal budgets that are close to balanced in the medium term. The upper limit for the annual budget deficit is generally 3% of gross domestic product and the debt level should be no higher than 60% of gross domestic product. Higher deficits are only permitted in substantiated exceptional cases. If the rules are breached, the European Commission and Ecofin Council can initiate a deficit procedure, which can result in severe sanctions.

Stablecoins are digital tokens issued by private issuers, which can fulfil the functions of money. They usually replicate the value of a currency and do not have to represent a claim against the issuer – they can be covered, for example, by sight deposits, securities or other assets instead.

Coined from the words “stagnation” and “inflation”, stagflation refers to an economic situation characterised by strong price increases and an absence of economic growth, resulting in high unemployment. Stagflation can occur, for example, if demand-side fiscal policy measures lead to rising prices as a result of sudden cost increases, but not to growth in employment.

Standing facilities are among the monetary policy instruments of the Eurosystem, which banks can make use of daily on their own initiative. The Eurosystem offers two standing facilities: the marginal lending facility and the deposit facility. The interest rates of the standing facilities form an interest rate corridor within which the overnight rate on the money market moves. As key interest rates, they give signals about the general course of monetary policy.

A standing order instructs a bank to pay a set amount at regular intervals to a particular payee. Standing orders save both time and effort and help to avoid forgetting a payment.

STEP2 is a payment system operated by EBA CLEARING for retail payments in euros, which can be used to process both SEPA credit transfers and SEPA direct debits. EBA CLEARING is a private enterprise owned by private banks and has a cooperation agreement with the Euro Banking Association (EBA), an association of European banks. It operates multiple significant payment transaction platforms.

A stock market index shows only the price developments of certain securities over time. Unlike a performance index, a stock market index does not include the dividend or interest payments of the underlying securities.

A stock option is a security that gives the holder the right, but not the obligation, to buy or sell a given equity share at a later date. (Option)

One of the functions of money is to serve as a store of value. To do so, it must retain its value over time, ie it cannot lose purchasing power. If there is sufficient price stability, it becomes possible to extend exchange transactions over time and save money. This makes an economic system more efficient. For this reason, the Eurosystem's primary task is to ensure price stability in the medium term.

A stress test is a simulation calculating the effects that extreme market developments have on the balance sheet items of a bank or an insurer in order to detect and assess risks to these institutions’ solvency. The Bundesbank carries out regular macro stress tests in which it forecasts developments in credit risk and net interest income for various scenarios with the aid of a statistical model. In micro stress tests, as in the market risk stress test, a selection of banks are asked to calculate the changes – on the basis of specified scenarios – in the market value of their exposures as a percentage of their liable capital.

In order to improve security in payment transactions, the revision of the directive on payment services in the internal market (Payment Services Directive 2, PSD2) introduced the obligation to ensure “strong customer authentication”. This occurs when a payer accesses their account online, initiates an electronic payment, or carries out an action through a remote channel which may imply a risk of payment fraud or other abuse. Strong customer authentication prescribes that authentication should occur using a combination of two factors from the categories “knowledge” (e.g. password, code, PIN), “possession” (e.g. token, smartphone) and “inherence” (e.g. fingerprint, voice recognition). The new requirements have to be implemented by 14 September 2019.

Structural operations are among the monetary policy instruments with which the central bank can adjust the banking system's liquidity position as against the Eurosystem. They can be carried out via reverse transactions, outright transactions or the issuance of ECB debt securities.

Subprime crisis is the name given to the banking and financial crisis that broke out in the US in summer 2007 and spread to Europe shortly afterwards. The name comes from the subprime loans, which were the starting point of the crisis. Subprime loans are loans to low-income borrowers with poor creditworthiness, which were issued particularly by American banks before the crisis. A large proportion of these loans were subsequently securitised (securisation) and sold to investors worldwide in the form of securities, which is why the crisis later spread to the rest of the world.

A subprime loan is a loan to a low-income debtor with subprime creditworthiness.

In banking union jargon, the Supervisory Board is the central governing body of the Single Supervisory Mechanism (SSM). The Supervisory Board takes charge of planning and executing the supervisory tasks conferred on the European Central Bank (ECB). However, the Supervisory Board has no decision-making powers of its own; instead, it submits draft decisions to the ECB Governing Council. These are considered to have been accepted if the Council raises no objections to them (non-objection procedure). The Chair of the Board is appointed by member states for a non-renewable five-year term. The position of Vice-Chair is held by a member of the ECB's Executive Board. The Board also includes four ECB representatives and a representative from each of the national competent authorities of the member states. It is supported by a Steering Committee, a smaller gathering of Board members who prepare meetings and decisions. The Federal Financial Supervisory Authority (BaFin) appoints the Supervisory Board's German representative, who may be accompanied by a representative of the Bundesbank.

Sustainable finance refers to the inclusion of environmental, social and governance (ESG) criteria in financial agents’ decisions. Notably, this includes the avoidance of child labour in product manufacture and appropriate treatment of corruption risk within the enterprise. It is closely related to the term “green finance”, which focuses on ecological sustainability and climate protection. As ecological sustainability is often considered the most important component of sustainable finance, the terms “green finance” and “sustainable finance” are sometimes used synonymously.

Contract whereby two parties agree to exchange different payment flows (e.g. foreign currency or interest payments) during a specific term on fixed dates in the future.

The swap rate is the difference between the spot rate and the forward rate for foreign exchange, in relation to the spot rate.

Swap transaction is a designation for a range of transactions in which an exchange takes place. Common swaps are interest rate swaps, foreign exchange swaps and credit default swaps. Foreign exchange swap transactions are part of the monetary policy toolkit of the Eurosystem.

A syndicated loan is a loan granted jointly by several banks (the syndicate). One or more of the banks can be the lead manager of the loan.

Systemic risk is the risk that problems encountered by one or more market participants, and/or the adjustments they make in response to those problems, will impair the functioning of the financial system. In a financial system, market participants are constantly responding to evolving conditions. They change their expectations regarding asset prices or foreign exchange rates, for example, or the likelihood of key macroeconomic events like an economic downturn or trade conflicts materialising. Expected or unexpected losses also elicit a response. Whether market participants update their expectations or suffer losses, the changes they make can be continuous and ongoing or abrupt and exceptional (shocks). Shocks can be confined to individual market participants or they might affect a number of them simultaneously. If shocks coincide with vulnerabilities in the financial system, the difficulties encountered by one or more market participants, or the manner in which these participants adjust in response to them, can excessively amplify the macroeconomic impact of the original shock, posing a risk to financial stability. Unexpectedly heavy losses in the financial system are one event that can amplify the macroeconomic impact of a shock in this way. If market participants’ capital ratios fall close to levels demanded by financial markets or supervisors, they will probably try to take remedial action by fixing their balance sheets. Steps might include offloading securities or taking a very restrictive approach to rolling over maturing loans and granting new facilities. In this scenario, the financial system’s adjustment response will amplify the original shock because curbing the supply of credit leaves aggregate activity much worse off than in a situation where sufficient capital buffers had been in place to absorb unexpectedly heavy financial system losses.

In macroprudential oversight jargon, a bank or group of banks is considered systemically important if its insolvency would have a serious impact on the functioning of the domestic financial system or important parts thereof, and would also have negative effects on the real economy. The Financial Stability Board (FSB) has classified around 30 financial institutions as systemically important. These institutions are subject to stricter capital requirements than other banks.

The term systemically important payment systems (SIPS) refers to large-value and retail payment systems which, owing to their transaction volume, market share, cross-border relevance and the provision of services to other infrastructures, are deemed significant for financial stability. The SIPS (TARGET2, EURO1 and STEP2)
are subject to regulation and monitoring by the European Central Bank (ECB). The objective of monitoring is to guarantee both efficient structures in risk management and the provisions necessary for good corporate governance.