Finance Terms

Back to Basics: CPI vs. PPI When looking at inflation, two key terms often come up: CPI and PPI . Both measure how prices change over time, but they focus on different parts of the economy. CPI , or Consumer Price Index , tracks the average change in prices that consumers pay for everyday goods and services—things like groceries, rent, transportation, and clothing. In short, CPI tells us how much more (or less) it costs to live. PPI , or Producer Price Index , measures the average change in prices that producers receive for their goods. This includes raw materials, parts, and wholesale goods—basically, what businesses pay before products reach store shelves. Here’s a simple example: Imagine the cost of wheat rises. That shows up first in the PPI, since it affects what bakeries pay to make bread. If those costs stay high, the bakery might raise its prices, which eventually increases the CPI when customers buy bread at the store. It’s a common mistake to assume CPI and PPI a...

Legal Lending Limit The legal lending limit is the maximum amount of money a bank is allowed to lend to a single borrower. This rule exists to protect the bank and its depositors by making sure the bank does not take on too much risk with one customer. In simple terms, it stops a bank from "putting all its eggs in one basket." For example, if a bank has $100 million in capital and surplus, and the general limit is 15%, it can lend up to $15 million to one borrower. If the loan is fully secured by easily sellable investments like stocks or bonds, the bank might be allowed to lend up to $25 million. This limit applies not only to individuals but also to companies or groups of borrowers who are financially connected. For example, if a corporation and its subsidiaries are borrowing, their loans may be combined when calculating the legal lending limit. These limits are set by regulators like the Office of the Comptroller of the Currency (OCC) for national banks, while ...

Shadow Banking Shadow banking refers to financial services provided by institutions that are not traditional banks and are not regulated like banks. These services include lending, investing, and credit-related activities. The word "shadow" may sound suspicious, but it simply means these activities happen outside regular banking rules, not that they are illegal. Examples of shadow banking include: Hedge funds that lend money or invest in risky assets Money market funds that offer short-term loans to businesses Peer-to-peer lending platforms where individuals lend money directly to others Finance companies that offer car loans or personal loans These institutions play an important role in the financial system. They provide credit to people and businesses that may not qualify for traditional bank loans. Shadow banking can also help spread financial risk and increase access to funding. However, because they are not watched as closely as banks, shadow ...