Thermo-Credit Glossary Drill: K Terms

Explanation: CET1 is the highest quality capital (common equity) that absorbs losses first via dividend cuts and write-downs. When CET1 is thin, banks restrain risk growth; with ample CET1 buffer, there’s room to expand risk assets.

Explanation: RWA compresses portfolio risk into one figure using regulatory risk weights. CET1/RWA is the capital adequacy focal ratio.

Explanation: Slack is how much the actual CET1/RWA exceeds the required minimum. More slack = more headroom to grow risk assets; less slack = prioritizing de‑risking/capital build.

Explanation: V_C summarizes effective headroom for additional lending after constraints and models. In QTC, smaller V_C makes allocation across uses more critical.

Explanation: p_C is the shadow price of credit capacity V_C: how much objective improves per unit of extra headroom. High p_C signals tight capacity.

Explanation: HQLA are assets readily monetizable even under stress. Level‑1 assets include top‑rated sovereigns and central bank reserves; illiquid private equity does not qualify.

Explanation: The buffer is a near‑cash reservoir to withstand funding stress. Without it, small shocks can trigger fire‑sales or rollover failures.

Explanation: LCR ensures enough high quality liquid assets for 30-day stress.

Explanation: NSFR prevents excessive maturity mismatch by requiring stable funding sources.

Explanation: Operational money actually circulating (not just base money) is "money-in-circulation".

Explanation: Stocks = existing totals; flows = incremental changes.

Explanation: Margin credit amplifies market exposure by borrowing against positions.

Explanation: CP is issued for short-term funding needs, typically 30–270 days.

Explanation: Structured interventions (QE, guarantees) represent policy work channels.

Explanation: MECE ensures allocation shares form a proper probability distribution for entropy S_M.

Explanation: State variables allow Maxwell-like derivative relations; proxies approximate them.

Explanation: Non-zero loop area signals dissipative or irreversible dynamics in (S_M, V_C) space.

Explanation: Stress tests and trend monitors form an early-warning suite.

Explanation: Quantity Theory of Credit tracks credit creation channels and use categories, not just aggregate money stock.