Banking Software Key Terms

Key terms you might find when evaluating banking software

By Ann Starr

Banking software runs transactions between banks and within the bank itself. As consumers we know it runs our ATM, online banking and banking by phone. It also manages our deposits, wire transfers, loan processing and investments. Banks have to make money just like any other enterprise and banking software saves resources because it can speed up transactions and banks are able to do more with fewer staff. There are innumerable firms that develop, market and sell banking software. Usually the purchase of banking software is a major expense and requires a great deal of research and knowledge to find the best software for a specific application. Here are key terms that you will want to understand as you navigate the various companies that sell banking software.

Straight Through Processing

Straight through processing (STP) allows transactions in the securities markets and banks to be conducted electronically. It is subject to regulatory restrictions. Banking software is designed to do straight through processing.
Try: TechTarget describes this in more detail.

Portfolio rebalancing

Portfolio rebalancing is the act of bringing a portfolio of investments into line when it has deviated away from originally established targets. Banking software can be designed to do this and include this in its suite of offerings.
Try: Morningstar describes this as an essential function of managing a portfolio of investments.

Mortgage pools

A mortgage pool is a compilation of similar financial instruments that are collected and are resold. There is banking software on the market that is designed to do this.
Try: There is a simple definition of this term on InvestorWords.com.

Commodity pools

A commodity pool is a fund that collects a combination of contributions from investors that would otherwise not be able to invest in a type of instrument such as commodities. Banking software can process commodity pools for investors.
Try: A good resource for learning more about commodity pooling can be found at Investopedia.

High water marks

A high water mark is also known as a loss carry forward provision and is a method for calculating fees in a hedge fund. It means that a manager of a hedge fund receives performance fees only when there are increases in the net asset value of the fund when compared to the highest net asset value it received previously. Banking software that is used in hedge funds has this provision built into the program.
Try: The Hedge Fund Group has a more complete definition of this term as well as other terms associated with this type of investing.

Hurdle rates

The hurdle rate is the rate of return that is minimally attractive and is also known as the MARR or minimal acceptable rate of return. Many companies use 12% as their hurdle rate. This percentage is based on the fact that the S&P 500 yields returns somewhere between 8% and 11% on an annualized basis. Banking software programs have hurdle rates factored into their calculations when they are being designed.
Try: Solution Matrix describes this term further.