This is a loan whose interest rate is tied to an index and is adjusted at a predetermined frequency. An ARM is subject to credit risk if interest rates rise and the borrower is unable to make the mortgage payment.

The classification of all assets within an institution. They are assigned to a category and expressed as a percentage of the total assets.

A Weiss index that measures the quality of the institution’s past underwriting and investment practices, as well as its loss reserve coverage.

A recession involving a decline in real GDP that is approximately equivalent to the average of the postwar recessions of 1957-58, 1960, 1970, 1974-75, 1980 and 1981-82. It is assumed, however, that in today’s market, the financial losses suffered from a recession of that magnitude would be greater than those experienced in previous decades. (See Severe Recession).