A Dictionary of Finance

Climate action is about more than cutting emissions. Even if mitigation succeeds, societies and economies will continue to face climate risks for years to come. Climate adaptation is how those risks are managed.In this episode of Invested by Europe, we speak with Roman Röhrl, climate change specialist at the European Investment Bank, about what climate adaptation really means and how it works in practice. The conversation explores how adaptation helps protect people, infrastructure and economic activity from climate hazards such as flooding, heatwaves and drought.The episode looks at why adaptation needs to be built into investment decisions across sectors, how long‑term finance and clear standards can help scale up resilience, and the role that institutions, policymakers and the financial sector play in supporting climate‑resilient development.🎧 Invested by Europe is the European Investment Bank’s video podcast exploring how Europe invests in its future — from climate and energy to housing, infrastructure and social cohesion. Hosted on Acast. See acast.com/privacy for more information.

Across Europe, affordable housing depends on more than construction alone. It requires long‑term finance, clear rules, access to land and careful urban planning.In this episode of Invested by Europe, we speak with Grzegorz Gajda, Senior Urban Specialist at the European Investment Bank, about what makes affordable housing work in practice. Drawing on experience from across Europe and beyond, the conversation looks at how governments, cities, investors and institutions can work together to increase supply, keep housing affordable and build sustainable urban communities.The episode explores how long‑term funding mechanisms, effective regulation, land recycling and mixed‑use development can help deliver housing that people can afford — and cities that function better for everyone.🎧 Invested by Europe is the European Investment Bank’s video podcast, exploring how Europe invests in its future — from housing and energy to innovation, infrastructure and social cohesion. Hosted on Acast. See acast.com/privacy for more information.

Explore how innovation in construction materials, digital tools and industrialised processes could transform how Europe builds—and who works in construction.  The conversation looks at why construction has changed so little for decades and how technologies such as digital twins, Building Information Modelling (BIM), robotics and artificial intelligence are reshaping design, production and collaboration. Industrialised, factory-based construction offers major gains in precision, cost control, waste reduction and worker safety. That will make construction attractive to young people and help solve the industry’s labour shortage.  The episode argues for a life-cycle approach to buildings, from design and construction to operation and end-of-life reuse of materials. By combining innovation with circular thinking, Europe can deliver buildings that are both affordable and sustainable. Hosted on Acast. See acast.com/privacy for more information.

Social investment shapes everyday life in Europe — from education and healthcare to childcare and housing. In this episode of Invested by Europe, we explore why investing in social infrastructure is not just about social protection, but a key driver of inclusive economic growth.  The podcast looks at how social investment helps more people participate in the labour market, boosts productivity and supports ageing societies. We examine gaps in childcare provision, the housing affordability challenge and Europe’s growing skills shortages — and why addressing them could significantly strengthen Europe’s economy.  The episode also explores how innovation, including digitalisation and artificial intelligence, can help deliver social services more efficiently, even as fiscal pressures rise. Hosted on Acast. See acast.com/privacy for more information.

Europe’s security environment is changing fast — and investment decisions made today will shape its resilience for decades. In this episode of Invested by Europe, we examine why security and defence is such an urgent priority and what European strategic autonomy means in practice.  The podcast explores how Europe is closing long-standing capability gaps through coordinated investment, joint procurement and new financing tools. Innovation emerges as a central theme, spanning areas such as cybersecurity, space, artificial intelligence and advanced electronics — many of them dual-use technologies with both civilian and military applications.  The episode also looks at the role of small and medium-sized enterprises, the importance of mobilising private investment alongside public funding, and how readiness depends on a broad ecosystem of technologies and suppliers.  Hosted on Acast. See acast.com/privacy for more information.

Invested by Europe explores the forces shaping the European economy. In each episode, we hear from experts tackling the most pressing challenges—from housing and energy to innovation and infrastructure, security and defence. We look at what’s changing, what the solutions are, and how Europe is investing in its future. Hosted on Acast. See acast.com/privacy for more information.

Explore why accelerating energy efficiency renovations is one of the fastest and most effective ways to cut energy demand, reduce emissions and lower energy bills.The podcast looks at why renovation rates remain too low, what’s holding back households, businesses and cities, and how investment and public support can help unlock action. We also examine the role of digital tools and artificial intelligence in planning renovations and operating buildings more efficiently.The episode explains how energy efficiency supports the rollout of renewable energy, improves comfort for citizens and delivers more predictable energy costs — and how the European Investment Bank helps scale up investment through financing and technical assistance. Hosted on Acast. See acast.com/privacy for more information.

What do you do when an economy is struggling? If you’re a policymaker, a politician, or a central banker, you develop a stimulus package. That’s the term we examine in today’s episode. It’s the inside story of one of the biggest stimulus packages in history, to find out how it was set up, how it worked and what kind of results it got. The inside story of the European Fund for Strategic Investments. Hosted on Acast. See acast.com/privacy for more information.

When we speak of the virtual world and storing things in ‘the cloud’, we seldom stop to realize that our digital climate impact is not virtual at all Many people see digitalisation as this magical pixie dust that Tinker Bell sprinkles on old industries to make them all environmentally friendly. Stop printing newspapers and get your news online and suddenly your environmental footprint is down to zero, right?Wrong.In this episode of the Monster Under the Bed podcast we learn:·        What is the climate impact of the digital sector?·        What is Jevon’s paradox?·        What is the digital sector doing to clean up its act?·        That even when digital services use renewable energy, it might be using up renewable energy that otherwise might be used by more critical sources. So we should hold off on all those cat videos·        How can you personally curtail the CO2 emissions of our own use of technology?My guests on this episode are the European Investment Bank’s head of division for digital infrastructure Harald Gruber and risk manager Shirley Rizk. They are but two of the many experts at the EU bank who are helping me challenge various rumours, myths, and misconceptions that we are trying to overturn on this series of podcasts.Each episode features one ‘monster under the bed’ something that we are scared of, or mistakenly believe to be true. Check out our episodes on urbanisation, healthcare, education and much more.Look up Monster Under the Bed on your phone’s podcast app, and click ‘Subscribe’ or ‘Follow’. This way you can sleep soundly without worrying about missing any episodes – and during the night Tinker Bell will sprinkle a new episodes into your phone for you!Also, please rate and review us, and give us feedback – I’m @AllarTankler on Twitter.  Hosted on Acast. See acast.com/privacy for more information.

In schools and in the workplace disability training makes for better inclusion—and lets everyone draw on the strengths of people who overcame difficulties most of us never facedIs disability a state of mind? According to Bebe Vio, the young Italian Paralympic champion, you don’t need arms and legs to reach your goals. However, disability and diversity can come in many different forms—they can even be invisible. How can you help create an inclusive society?In this episode of the Monster Under the Bed podcast you’ll find out:·        What is social diversity, diversity in the workplace, and diversity benefits·        Why inclusion should start at school·        How culture and education can build equality·        Where jobs and disability come togetherAt the European Investment Bank, the EU bank, we care about diversity and inclusion. In this episode, we meet kids, men and women, with and without disabilities. All together they challenge our assumptions and prejudices.In each episode of the Monster Under the Bed podcast, we fight one myth in society and win the battle for a more sensible way of doing things.So that you don’t miss any episodes, subscribe to Monster Under the Bed on your phone’s podcast app. You can do it in iTunes, Acast and many other podcast platforms as well.Let us know if you can think of a monster we should expose on future episodes. Get in touch on Twitter @AllarTankler. If you’ve got something to say about diversity and inclusion in particular, contact me @Anto4EIB Hosted on Acast. See acast.com/privacy for more information.

In this episode of Monster Under the Bed, we bust the idea that the EU is something to scare people with, and the myth that it costs us too muchIn the last few years, the EU budget has become a major topic of public discourse – whether in the media, or in our neighbourhood cafes. Something that once felt so remote has gone mainstream.A lot of that is due to Brexit, and a lot of the conversations have had to do with specifically how much the European Union costs us, and our countries. So we decided to figure out whether there’s any truth in the often-heard exclamations that the EU costs us too much.In this episode you’ll find out (without a lot of math or statistics):·        What is the EU budget? How is it decided, collected and spent? How big is it?·        How much does each European contribute to the EU budget?·        Why do some countries pay more into the EU budget than others do?·        What is cohesion?·        Why do people believe some of the myths about the EU floating around, and how can we use a moment of crisis and turn it into an opportunity?At the European Investment Bank, the EU bank, we have all kinds of experts, who can challenge our assumptions, notions and prejudices about anything from climate to cybercrime and from healthcare to urbanisation. In this episode you will hear our Vice-President Alexander Stubb, as well as Mariusz Krukowski, the European Investment Bank’s senior policy adviser who works on EU budget issues and Brexit, among other things.So that you don’t miss any episodes, subscribe to Monster Under the Bed on your phone’s podcast app. You can do it in iTunes, Acast and many other podcast platforms as well. In each episode of the podcast, we fight one imaginary monster under the bed and win the battle for a more sensible way of doing things.Let us know if you can think of a monster we should expose on future episodes. Get in touch on Twitter @AllarTankler. This episode contains audio content provided by the Audiovisual service of the European Commission (©European Union, 2013). Hosted on Acast. See acast.com/privacy for more information.

In this episode of Monster Under the Bed, we bust the ‘you are what you know’ education myth and discover that, in fact, you are the things you know how to doIn the grim Victorian building where I went to school, we learned everything by rote. It worked out okay for me. But the focus at the school my kids attend doesn’t seem to be on cramming knowledge into their heads, and sometimes I wonder if that’s bad for them.So I decided to examine the ideas I had about schooling. Maybe the things I thought made for good learning were actually education myths that no longer apply in the digital age. With the help of the education experts at the European Investment Bank, the EU bank, I decided to find out.In this episode you’ll find out:·        What are competencies? Competencies are the things you know how to do, rather than the things you know (like public speaking or putting together a presentation)·        That kids are now focused on learning vs memorization, or to put it another way understanding vs memorizing. You could say it means learning life skills vs facts.·        that when you have to change career (and even sometimes when you don’t) you need upskilling. What is upskilling? Upskilling is often retraining to bring you skills and competencies in line with what employers need in a marketplace that’s increasingly digital·        that schools are preparing kids for the changes digitalisation is making to old ideas about careers·        how an EU programme makes education fairer and more socially inclusive.At the European Investment Bank Group, the EU bank, we have all kinds of experts, just like the education specialists in this episode. They can challenge our assumptions, notions and prejudices about anything from climate to cybercrime and from healthcare to urbanisation.We started the Monster Under the Bed podcast to examine these myths. In each episode of the podcast, we fight one imaginary monster under the bed and win the battle for a more sensible way of doing things.So that you don’t miss any episodes, subscribe to Monster Under the Bed on your phone’s podcast app. You can do it in iTunes, Acast and many other podcast platforms as well.Let us know if you can think of a monster we should expose on future episodes. Get in touch on Twitter @AllarTankler. If you’ve got something to say about education in particular, let me know @EIBMatt. Hosted on Acast. See acast.com/privacy for more information.

Here’s why you should be even more scared of cybercrime and the rising cost of cybercrime preventionYou probably think that if you have the latest software on your computer and a strong IT department at work, you’re more or less safe from cyberattacks. Boy, are you wrong.This myth is costing businesses a lot of money and causing people a lot of harm in lost data and privacy. You definitely should not rely only on software updates or the IT department to protect you from hackers. This episode of the Monster Under the Bed podcast lays out exactly what you need to do to stay as safe as possible.In this episode you’ll find out:·        Why each one of us must take responsibility for cybersecurity·        Why an IT department can’t prevent hacking all the time·        Why cybercrime is getting worse and what are the projected losses. (One of our experts calls it “a shadow industry that is really spending time trying to defraud people.”)·        How adults and children can arm themselves for cyberattacks·        What a 10-year-old does when his computer is hackedAt the European Investment Bank, the EU bank, we have all kinds of experts, including the cybercrime specialists in this episode. They challenge our assumptions, notions and prejudices about anything from climate to cybercrime and from healthcare to urbanisation.The Monster Under the Bed podcast examines these myths. In each episode, we fight one imaginary monster under the bed and win the battle for a more sensible way of doing things.So that you don’t miss any episodes, subscribe to Monster Under the Bed on your phone’s podcast app. You can do it in iTunes, Acast and many other podcast platforms as well.Let us know if you can think of a monster we should expose on future episodes. Get in touch on Twitter @AllarTankler. If you’ve got something to say about cybercrime in particular, let me know @EIBChris. Hosted on Acast. See acast.com/privacy for more information.

Forget the dystopian images of overcrowded, polluting cities. When urban life is well-planned and well-managed it’s better for the environment than country living.We all know the dystopian image of city life—smog, roads jammed with traffic, high prices and noise. Listen to this installment of our myth-busting show to find out:·        Where did cities come from? What were the instincts that first drove us to live close together? And are these reasons still valid today?·        Where did cities mess up? (Where did the dystopian image of cities as places with a low quality of life come from?)·        What is mixed planning and is it an entirely good thing? (No mixed reviews at all!)·        How country living is expensive for society and creates social isolation.·        Why urban sprawl is the real monster we should fear—not life in well-planned, well-managed, compact towns.·        And how deserting the countryside can actually be a boon for nature.At the European Investment Bank, we have all kinds of experts who can challenge the assumptions, notions and prejudices we all have about anything from climate to cybercrime, and from healthcare to education.On this episode, our guests are Brendan McDonagh from the European Investment Advisory Hub, a partnership between the EIB and the European Commission, EIB’s senior urban development specialist Grzegorz Gajda, and Stefanie Lindenberg, coordinator for the Natural Capital Finance Facility at the EIB – and some random people we approached in Luxembourg to find out how they feel about living in the city, or whether they’d rather be anywhere else.All throughout the episodes we’ll be tackling those myths and fears to identify people and projects that are taking a more rational approach—which is good for our economy and our society.Talking of rational, it makes sense to subscribe to Monster Under the Bed on your phone’s podcast app. This way you won’t miss any episodes. We’re also very grateful if you rate and review us – that helps others find the podcast. And you can suggest myths to bust and monsters to slay by tagging me on Twitter – I’m @AllarTankler. Hosted on Acast. See acast.com/privacy for more information.

‘Monster Under the Bed’ is a new season of podcasts by the European Investment Bank that tackles myths and prejudices we all have about anything from health care to cybercrime, and from urban planning to education.In this episode we talk about how advances in medicine and squeezed budgets are forcing countries to rethink health care.For most of us, hospitals conjure up some very specific images: nurses and doctors running around, fancy machinery beeping away, somebody yelling “STAT!” While hospitals are chaotic places, they are also strangely reassuring. No matter how you are injured or what strange illness you’ve contracted, going to the nearby hospital can make you better. But maybe you don’t need a hospital after all. Did you know:-      Hospitals are an extremely expensive way to treat people-      Technology has made many surgeries less invasive, so that we don’t need to spend as much time in a hospital bed-      Patients in hospitals are often overtreated or required to stay longer than necessary-      Germany has a higher number of hospital beds than Spain, but the Spanish system is one of the world’s best-      People with chronic health issues are best treated outside of a hospital setting-      20% of all health spending is wasted on ineffective careOur guests are Tunde Szabo and Dana Burduja from the European Investment Bank’s Life Sciences division. They talk about how many countries actually need to close hospitals, or at least slim them down, to free up resources for other, more effective forms of care.Subscribe and rate us! This way you won’t miss any episodes. And give us feedback via @AllarTankler or Twitter. Hosted on Acast. See acast.com/privacy for more information.

Listen to our new podcast - Monster Under the Bed! Hosted on Acast. See acast.com/privacy for more information.

A big part of finance (and life) is about trying to figure out what will happen in the future. Will the market go up? Will interest rates drop? Take a look into the future with an exclusive sneak peak at our new podcast Future Europe.  Hosted on Acast. See acast.com/privacy for more information.

Why do some companies decide not to sell shares on public exchanges? And who buys private equity? A Dictionary of Finance finds out. We also learn what "love money" is. Hosted on Acast. See acast.com/privacy for more information.

From hospitals to schools and toll roads, project finance can be a valuable way to handle risk. Here’s how project finance works. Hosted on Acast. See acast.com/privacy for more information.

How do banks track possible fraud? Take a look inside bank fraud investigations and forensic accounting. Hosted on Acast. See acast.com/privacy for more information.

You don’t need a Ph.D to run bank risk models. But it helps. So A Dictionary of Finance got two superterrific scientists to explain. It’s important because bank risk models are central to the assessment of financial risk by banks. Hosted on Acast. See acast.com/privacy for more information.

Find out how macroeconomics works with an overview of Adam Smith and the invisible hand, the Keynesian approach and the Chicago school. Macro (big) is the opposite of micro (small). So macroeconomics is the opposite of microfinance, right? Sorry, things are never that simple in banking. Listen to our episode on microfinance to see what that’s all about. And listen to this episode so you’ll know how macroeconomics works. In fact, you’ll see that, in a way, the main role of macroeconomics is to simplify economics. European Investment Bank economist Rozalia Pal explains that:Macroeconomics deals with the economic performance of aggregated individual actors (companies, or people). In other words, what you do with your money is microeconomics. What the EU does with its money is macroeconomics.We also learn about the history and the approaches behind various schools of thought in economic studies:The classical school of thought, led by Adam Smith, famous for his ‘invisible hand’ metaphor. Smith posited that the invisible hand of the market creates the desired equilibrium.Keynesian economics: During the Great Depression, Rozalia tells us, many economists came to see the invisible hand as failing to working (or at least failing to work fast enough). So the thinking of John Maynard Keynes rose to prominence. The British economist advocated the use of monetary (meaning, focused on interest rates) and fiscal (focused on government spending and taxation) interventions to stimulate the economy.Neo-Keynesians: Following Keynes, Paul Samuelson and Franco Modigliani developed his ideas using mathematical models.Chicago school economics, also called the neo-classical approach, opposed the Keynesian view mostly by showing that government interventions only impact the demand side of the economy. As the supply side is left intact, the effects are only short-term. Milton Friedman promoted what is known as a monetarist approach, proposing a small, but steady expansion of money supply.Does this sound like a simplification? Well, that’s what macroeconomics tries to do, Rozalia tells us. To take lots of different inputs and create an overarching idea.  Hosted on Acast. See acast.com/privacy for more information.

The European Fund for Strategic Investments (EFSI) hits a big target today. We mark the delivery of €315 billion in investment through this programme by turning A Dictionary of Finance into an EFSI podcast with Iliyana Tsanova, deputy managing director of EFSI. She lays out the reasoning behind the programme, which was created as part of Europe’s response to the global financial crisis. Administered by the European Investment Bank, EFSI consists of a guarantee from the EU budget and some billions of EIB capital. The aim: to support viable projects that were, nonetheless, failing to find market financing. The projects were, in fact, falling through the cracks of market gaps. (You’ll find out what a market gap is in the podcast too.) The original target set for the EIB was to invest in projects that would trigger €315 billion of investment after three years. That’s the landmark that has been reached today, and so we put out a special issue of the podcast to mark the occasion. Hosted on Acast. See acast.com/privacy for more information.

If you want to know how mergers and acquisitions work, you’d best ask a lawyer. Because there are legions of them involved in any M&A deal (as mergers and acquisitions are known).We hear from two lawyers with extensive experience in M&A, as well as other aspects of corporate law and equity financing, about exactly how mergers and acquisitions work.Alexandra Slack, senior legal counsel at the European Investment Fund, and her European Investment Bank colleague Tom Nguyen take us through the story of M&A from the 1980s, when the field was so wild, hostile and controversial that it prompted a best-selling book called “Barbarians at the Gate,” through to more recent moves toward a less confrontational style of merger. On the way, Tom namechecks Gordon Gecko. Of course.“From the legal perspective, a merger is when one company absorbs another and therefore becomes one entity,” says Alexandra. “In an acquisition, one company takes a majority stake in another and the two companies continue to exist.”For fans of financial definitions (and this is A Dictionary of Finance, after all), Tom and Alexandra explain various terms, including:Squeeze out, which allows an acquirer to buy the whole company, once a certain percentage of the shareholders accept its offer. This is a way of dealing with a dead register.A dead register refers to shareholders who have changed address, for example, but haven’t informed the company, so they don’t respond to an offer to buy their shares by another company.If there are terms or concepts you would like us to explore, give us a shout on Twitter (@EIBMatt or @AllarTankler). Or just send us a picture of you with your hair gelled like Gordon Gecko. Hosted on Acast. See acast.com/privacy for more information.

Let’s face it, people don’t like bankers. But that’s because they don’t know about social finance. On this week’s episode of ‘A Dictionary of Finance’ we hear about social finance, which tackles social issues such as migration or the integration of prisoners into society. Listen, because it will make you feel warm and fuzzy. The episode also shows you how to get financing for your business through programmes backed by the European Investment Fund. If you think you might need a microfinance loan, go to 23:10 in the episode and hear Sam Clause, senior investment officer at the European Investment Fund for inclusive finance, explain how it works. At 27:20, Yvette Go, the EIF’s head of social and environmental impact investment, explains how you can get different types of equity financing for your social venture. As this is A Dictionary of Finance, we’ll also look at important terms, including ethical bank. An ethical bank is a place people might invest their money if they want to be sure the bank, in turn, invests in social enterprises. Sam tells you more about this at 30:20, explaining where to find details of an ethical bank in your country. If there are terms or concepts you would like us to explore, give us a shout on Twitter (@EIBMatt or @AllarTankler).Subscribe to our podcast, rate us, and review us! You can do most of those things on any podcast platform you prefer, be it iTunes, Acast or Spotify. Hosted on Acast. See acast.com/privacy for more information.

It took us 50-plus episodes of ‘A Dictionary of Finance’ podcast to realize we haven’t covered some of the very basics: terminology surrounding loans, our bread and butter.So, Matt morphed into a sock-tycoon trying to get a loan from the European Investment Bank, with Allar acting as his not-so-knowledgeable lawyer. Explaining the loan terms are Garbiela Barufi, EIB loan officer for corporates in Iberia, and Martin Arnold, head of unit for corporate lending in the region. They help us come to terms with the following:Tenor of a loan. Turns out it’s the same as maturity and refers to when the loan needs to be paid back.Grace period. Typically immediately after the loan has been drawn down or disbursed, when the borrower does not need to make payments yet. It’s so the borrower can start making money on the investment first. Availability period.  When the loan is available for the borrower. This period can even be extended, usually for a fee.We also cover secured and unsecured loans, senior and subordinated loans. We learn about floating and fixed interest rates, about EURIBOR, the disgraced LIBOR and SONIA (Sterling Overnight Index Average) which is relevant as the EIB has just issued a first bond linked to the SONIA benchmark.We also learn about the pricing grid or pricing ratchet, in which the price of a loan is linked to a metric of the company’s performance, meaning that the cost of the loan can go up or down based on how the company is doing.And then we discuss repayment profiles, such as balloon, bullet, sculpted etc. We’ll go over the differences of repayment schedules, meaning when do you have to repay how much, exactly. We also discuss which profiles might be more suitable for which kind of businesses.The balloon, for example, doesn’t refer to either the borrower or the bank going bust, at all! Instead, it means the repayments are small in the beginning, and balloon towards the end.And the bullet refers to the silver bullet, meaning it’s a loan that is the answer to all of your problems. No, just kidding, please consult a qualified expert before making any financial decisions, and remember, Matt and Allar are only (barely) qualified to be doing this podcast.Remember to subscribe to this podcast and tell others! Simply look up ‘A Dictionary of Finance’ on iTunes, Acast or Spotify. Get in touch via Twitter with your feedback (@EIBMatt or @AllarTankler). Hosted on Acast. See acast.com/privacy for more information.

Circular economy is an economic system which contrasts with the linear economy. In the linear economy, companies extract natural resources, make something out of them, pass the product on to consumers for use, only for the product eventually to be discarded. In the circular economy, producers and consumers avoid waste and extracting new natural resources. Instead, they reuse/repair products. Circular economy takes the “line” in the linear economy, shortens it, and bends it into a circle. That’s how Liesbet Goovaerts, an engineer in advanced materials at the European Investment Bank (yes, we do have engineers working at the bank, and, yes, we do have an advanced materials division), elegantly explains it.Liesbet is joined on this episode of ‘A Dictionary of Finance’ podcast by Arnold Verbeek, a senior advisor in the Innovation Finance Advisory division of the European Investment Bank.The process they describe can also be called a closed loop.Together they explain how virgin raw materials (these are materials, or natural capital) are extracted for the very first time, and why it’s better to reuse secondary raw materials, which are salvaged from an existing product. We also learn what cradle to cradle thinking is (bringing the product or its parts back to the cradle of its initial production). This is also sometimes called eco-design.Turns out there is also a strong business case in the circular economy. Hedging yourself against price fluctuations of raw materials, for example.When circular economy companies go to banks to seek financing, banks often overlook these aspects, and instead concentrate on the more novel features of the circular economy businesses. The fact that, for example, they may be producing more durable goods and thus have a lower turnover but a more devout client base. Or that instead of selling equipment they lease it, meaning revenue streams trickle in over time.So what do you think circular economy experts would say when asked if they support the continuous re-use of economic textbooks from the 1970s in college classrooms today? They prefer them to be upgraded, instead. Find out why in the program!If you do like a new podcast every now and then, however (we really do our best not to extract much of virgin raw materials into their production!), subscribe to A Dictionary of Finance! You can do so on Acast, Spotify, iTunes and everywhere else you get your podcasts.Tell your friends and tell us (we’re friendly) what you think about it. We are @EIBMatt or @AllarTankler on Twitter.  Hosted on Acast. See acast.com/privacy for more information.

Imagine you are shopping for a new car—and not just based on the colour. You might consider the number of people it fits (especially if you have kids, despite initially warming to the idea of a convertible coupé), the mileage, the CO2 emissions (if you still want to be admitted to within Paris city limits in a couple of years), how fast it can go, the crash test results, and many other metrics.Turns out there is something similar for banks.When we invited some experts from the European Investment Bank to appear on ‘A Dictionary of Finance’ podcast to talk about best banking practice and banking regulation, we found out banks have to publish their:·        capital adequacy ratio·        leverage ratio·        liquidity ratio·        large exposures to single counterparties·        and various other metrics.These ratios have threshold levels that the bank has to meet so that it’s allowed to operate.But these ratios can also be used by consumers and investors when deciding whether they want to engage with a certain bank.The ratios are prudential requirements for banks. Additionally, there are also non-prudential requirements, which deal with issues such as how the bank is governed, how transparent it is, how compliant it is with other regulation, etc.As Luis Garrido, EIB managerial advisor, elegantly states, the fact that these are called non-prudential requirements, does not mean that these are imprudent. It just helps differentiate from the prudential requirements, which mostly deal with the financial health of the bank and help ensure it doesn’t go bust.Joining Luis on the podcast, we had Marine Viegas, credit risk management officer of the EIB’s regulation and best banking practice division, and Tero Pietila, head of the EIB’s regulatory matters division for this very informative episode.To get the next very informative episode, subscribe to our podcast! There is a button for that on iTunes, Acast, Spotify and most other podcast platforms. Some of them also have the option of rating or reviewing the show, which we fully encourage.Another way to give feedback is by tweeting @EIBMatt or @AllarTankler. Join us again next week!  Hosted on Acast. See acast.com/privacy for more information.

In preparing this podcast which aims to answer the question what is banking compliance, we naturally engaged in some deep research on the subject. So, on Wikipedia we discovered that in mechanical science compliance is the opposite of stiffness, i.e. flexibility, measured in metres per newton.Which may sound confusing, because in finance and banking, compliance is not well known for its flexibility. We had a chat on ‘A Dictionary of Finance’ podcast with Branimir Berkovic, head of the tax compliance unit, and Sophie Rase, compliance officer in corporate compliance at the European Investment Bank to find out what compliance encompasses in the industry. And we learned that:Compliance ensures the organization follows rules and regulations, set both externally (for example, by lawmakers) and internally (for example, by shareholders).One could even say that compliance is the flexibility of banks in response to society’s standards and demands. Not unlike in mechanical science, compliance helps banks be less stiff, if you will.Sophie and Branimir explain that compliance involves monitoring and following rules in relation to:·        tax evasion·        money laundering·        financing of terrorism·        corruption and more.We find out what politically exposed people are. (It’s people who have business or family links to government officials and could thereby be linked to corruption schemes.) And we find out about BEPS (Base Erosion and Profit Shifting). These are strategies companies use to make their tax bill smaller in a given jurisdiction, by making their profit seem lower by eroding their taxable base with fake costs, or transferring their profits to another jurisdiction with more favourable tax laws.Sophie tells us that compliance is a process-driven discipline, which works by creating and monitoring different policies, such as a system for whistleblowing. She also explains the three lines of defence in the context of a bank:First line: the front office, the loan officers who directly engage with clients and should identify any compliance risks involved with doing business with anyone. Second line: compliance officers, who develop and monitor the procedures, and investigate more deeply should red flags be raised in a project.Third line: independent auditors.Our podcast helps—somehow, I’m sure—to make the bank less stiff and more compliant. So if you appreciate our efforts, subscribe, rate us, and review us!All you need to do for that is to look us up on iTunes, Acast, Spotify or wherever else you prefer to keep track of your favourite podcasts. Your feedback is also much appreciated via @EIBMatt or @AllarTankler on Twitter.  Hosted on Acast. See acast.com/privacy for more information.

If you had the option of signing a contract today to buy a scoop of ice cream from me in one month, and to pay 90% of the price of a loaf of bread on that day for it, would you take it? If so, you and I have just entered into the derivatives business. That is, if I understood correctly what Julien Glachon, financial risk management officer in the derivatives division of the European Investment Bank, was telling us on this week’s show of ‘A Dictionary of Finance’.He talks about plain vanilla derivatives, which, unfortunately, are not edible: the put option and the call option are basic forms of derivatives. (The prior example with the scoop of ice cream, I’m pretty sure, would qualify as a call option – a call for ice cream, to be specific).But derivatives are not just about satisfying your frozen yoghurt cravings. They can include bets on the market (which way will the price of bread go?) or hedging against bets you have already taken. For example, if you have a lot of bread in production, and you’re worried the price of milk might go down, you may be interested in the said derivative, because in case it does, you would at least get a lot of fairly cheap ice cream.Glachon also describes how bankers use mathematical formulas that calculate the price for a derivative and then use software to monitor the underlying conditions (e.g. prices of the assets that the derivative is linked to) to constantly calculate a price for the derivative.We also learn about a replication portfolio, which helps make sure your trading partner can sell you that scoop in various market conditions. (The bank might thus take up a contract in the next weeks, while the price is still high, to sell someone a loaf of bread at the ice cream scoop delivery date). Are you getting a brain-freeze yet? No?Well, then consider the interest-rate swap as described by Julian. A company takes out a loan with a bank which is only willing to offer floating interest rates. The company, not happy with that, then goes to another bank and creates a derivative on the initial loan. The company pays this other bank a fixed interest rate, and receives whatever the current floating rate is, which it then passes on to the original lender.Ok, now you deserve an ice cream!But before you go, press subscribe! You can do that (as well as rate and review us) on iTunes and many other podcast platforms. And tell us your favourite flavor of ice cream (or derivative) via @EIBMatt or @AllarTankler on Twitter.  Hosted on Acast. See acast.com/privacy for more information.

Pay attention, credit risk management newbies: the expected loss equals the probability of default times the exposure at default times the haircut.Now you may say: “What?!” But that’s only because you haven’t listened to this week’s episode of the European Investment Bank’s podcast ‘A Dictionary of Finance’. In it, EIB credit risk management officer Gabriela Manciu explains everything eloquently:The probability of default, meaning the chance of the borrower going bustXExposure at default, which is how much they owe you when they go bustXHaircut, meaning how much of it you are not likely to recover (by claiming collateral, for example). This is also known as “loss given default.”The first bit, the probability of default, is perhaps the most difficult to estimate, and often takes the form of a credit rating. This can be done by a bank internally (it has probably been done to you, if you’ve ever taken out a credit card or a mortgage), or publicly by ratings agencies such as Fitch, Moody’s and Standard & Poor’s. The rating takes into account both the company and its broader operating environment, including what we call the country (or sovereign) risk.Gabriela also explains how credit risk is then managed by banks, through pricing of the financial products offered to the borrowers with various credit risk profiles and through the covenants included in the loan contracts. These include concepts such as pari passu, cross default, material adverse events, negative pledge etc.To understand these better, we suggest you also give a listen to the episodes we did on legal jargon: part 1 and part 2.It turns out these legal clauses in the financing contracts are not there just so a bank can call a loan home quickly in case something happens. They are there to ensure we get a seat around the table to discuss the best course of action, which could hopefully see the borrower survive, and the lender get its money back (also known as restructuring).While you’re at the table you might also get a piece of the club deal being handed around – but I’m not going to tell you what that is, you’ll have to listen to the episode.And, as the Beyoncé hit goes: if you like it, then you should put a ‘Subscribe’ on it! You can hit subscribe on iTunes, Acast or Spotify or wherever you listen to podcasts.We are also grateful for your reviews, favourable ratings, and miscellaneous feedback via Twitter (@EIBMatt or @AllarTankler).  Hosted on Acast. See acast.com/privacy for more information.

If your familiarity with Alexander Hamilton ends with the musical, you may want to go back to last week’s episode of ‘A Dictionary of Finance’. In it, the first part of our Story of the Euro, Aldo Romani, managerial advisor in the euro division of our capital markets directorate, described his recipe for a common currency: common debt. Without common debt, one could argue, if one state using a single currency starts having difficulty servicing its debt, the currency takes a hit, possibly dragging down hurting the other states.This is where we pick up this week, again with Aldo and Laurent Maurin, senior economist in the economic studies division at the European Investment Bank. We talk about the sovereign debt crisis, the flaws in the Eurosystem exposed by the crisis, criticisms of the euro, and the measures adopted since to strengthen the euro area. These include:-         The Capital Markets Union: a trove of EU legislation to integrate European capital markets, so as to make the financial system altogether more resilient and allow more opportunities for investors and businesses to find each other.-         The Banking Union: a set of EU legislation to establish common (and more stringent) requirements for banks across the EU, centralized supervision of those rules on some of the more important banks, and other measures.Both of these are still works in progress, as is the euro in general. And it turns out the crisis has been instrumental in improving the system.We also ask our guests why some countries still haven’t joined the Eurozone. Tune in, and find out whether they think they will.We still have about a dozen episodes to go before we wrap up this 60-episode series, so if there are terms or concepts you would like us to explore, give us a shout on Twitter (@EIBMatt or @AllarTankler).Also, we can’t stress this enough: subscribe to our podcast, rate us, and review us! You can do most of those things on any podcast platform you prefer, be it iTunes, Acast, Spotify or even YouTube.  Hosted on Acast. See acast.com/privacy for more information.

337 million people can’t be wrong, right? That’s how many people live in countries that have adopted the euro as their currency. But the history of the euro is rather short—so far. And as our guests this week, senior economist in the economic studies division at the European Investment Bank Laurent Maurin and Aldo Romani, managerial advisor in the euro divison of our capital markets directorate point out, it took the dollar a lot longer to become the well established, liquid, and stable currency that it is today.So the story of the euro, in all likelihood, is far from over. But we’ll begin at the very start: we’ll talk about the Eurco (the European Composite Unit), the ECU (the European Currency Unit), the predecessors of the euro as we know it today, and how the EIB was an early player in issuing bonds in these denominations.More importantly, we’ll find out what have been the benefits of the euro – thereby covering essentially the reasons why it was introduced in the first place:·        interest and inflation rates have converged to a lower level·        exporters are better protected·        investors don’t have to run the risk of a country devaluing their currency·        and how all that more than compensates for the lack of monetary policy flexibility for individual countries.In fact, Aldo Romani describes how the common currency actually created a more competitive environment for the EIB on the capital markets, and how the Bank had to adopt the principle of ‘adventure’, as specified by Italian philosopher Vittorio Mathieu: moving voluntarily towards the future and embracing the change, to turn it into an advantage.We’ll even go as far as ask these guys what’s wrong with the euro. But that will come in next week’s episode. Since you won’t want to miss that – subscribe to our podcast! You can do it on iTunes, Acast, Spotify, YouTube, and everywhere else.We also very much appreciate your feedback (whether via Twitter @EIBMatt and @AllarTankler) or your reviews and ratings on the podcast platforms. Hosted on Acast. See acast.com/privacy for more information.

If there's one thing Mideast countries need, it's potable water. Thanks to a series of technical assistancestudies managed by the European Investment Bank, the Red Sea-Dead Sea pipeline will be a vital solution to the water crisis.Technical assistance brought the pipeline to this advanced stage. Water engineer Harald Schölzel and water economist Edouard Pérard came on A Dictionary of Finance podcast to explain how technical assistance works in the context of a major development project like Red-Dead, as well as another desalination plant in Gaza. Hosted on Acast. See acast.com/privacy for more information.

IRR (Internal rate of return) indicates the comparative profitability of a possible investment by taking into account all outgoing and incoming cash flows from an investment over the investment period. IRR is one of the most common metrics by which investors judge funds. So naturally your hosts on ‘A Dictionary of Finance’ podcast, Matt and Allar, wanted to find out what exactly it tells you, how its calculated—and how to pronounce it.We invited Aglaé Touchard-Le Drian and Gunter Fischer, investment officers with the European Investment Bank’s Global Energy Efficiency and Renewable Energy Fund, to explain it. We quickly realized that without pen and paper, and several years of post-graduate studies, we wouldn’t really be able to fully get it.But we did find out some useful facts about IRR:you should check the fine print when reading about a fund’s IRR, because it does depend on various assumptions and valuationshigher IRR is in general better than lower IRR (this is the point in the show where our guests collectively, and almost audibly, went: “Duh!”)IRR is also situational. Meaning that a 6% IRR for a wind energy project in Belgium might be great, but for a similar project in sub-Saharan Africa investors wouldn’t really bother. The return has to match the risk.We also hear about the difference between realized and targeted IRR, and dabble a little with the concept of present value of future cash-flows.And why is it “internal”? It’s because the rate really depends on cash-flows inside a firm or fund.But this internal rate of return is really used by investors externally – to compare that fund’s performance with possible other investments they could make, or could have made.Speaking of rates and ratings – rate our podcast! Subscribe and review the podcast too. We are on iTunes, we are now also on Acast, Spotify, YouTube, and everywhere else. You can get in touch with us via @EIBMatt and @AllarTankler on Twitter. Hosted on Acast. See acast.com/privacy for more information.

In this week’s episode of ‘A Dictionary of Finance’ podcast by the European Investment Bank we talk about the intersection of the private and the public sector in development finance. Specifically, we talk about how the public investment and development banks make projects bankable for the private sector.And make themselves obsolete in the process!As Aglaé Touchard-Le Drian, investment officer with EIB’s Global Energy Efficiency and Renewable Energy Fund (GEEREF), puts it rather more eloquently: “Ultimately, our goal would be to disappear and projects would be financed locally by local investors.”“But,” Aglaé adds, “that is not the case today.”This is why public finance institutions put effort into de-risking projects, taking on the bulk of the risk, blending the loans and investments with some grant money to make sure it takes off, as well as providing advice and technical assistance, and so much more.Just so that the private sector can step in and reap the rewards, right? Why would we do that?Gunter Fischer, also an investment officer with GEEREF, reminds us that the public banks do this only in situations where otherwise there wouldn’t have been private investment at all—and consequently the project would simply not have been realized.Another benefit for the public sector is that capital can be preserved and the financing can be recycled for other projects, unlike when grants and subsidies are made, Touchard-Le Drian reminds us.In the end, the private sector does take over. Many investors who initially invested with the EIB are now willing to invest in similar geographies and sectors on their own, having had a positive experience, Fischer says.We dare you to give it a listen and not be convinced! We also dare you to give it a listen and not want to rate us with five stars on iTunes, give us a glowing review, and subscribe to future episodes. Hosted on Acast. See acast.com/privacy for more information.

You—yes you—have been the subject of a KYC examination. No, not by your doctor. By your bank.KYC stands for Know Your Customer, Know Your Client or (in the case of a bank) Know Your Counterparty. It is the initial process by which a bank ensures that its client is not involved in money laundering or other activities that are illegal or could damage the bank’s reputation.If you’ve ever opened a bank account, the information you had to hand over to the bank was part of its “Know Your Customer,” or KYC, process. It was designed to make sure that you wouldn’t use your account for money laundering or financing terrorism.But you wouldn’t do anything like that, would you?Still it’s vital for banks to screen a client or counterparty (the institutions or people who’ll be on the other end of a loan) with a thorough KYC process, says Virginie Marc, head of the European Investment Bank’s KYC unit on the podcast.On the podcast you’ll also learn:Money laundering takes the proceeds of a crime and puts them into the financial system so that they can’t be traced to the crime any more.Financing terrorism often uses illegal sources of funds and launders them.AML-CFT refers to Anti-Money Laundering/Combatting the Financing of Terrorism controls employed by banks and other institutions.Virginie lays out the four steps of the KYC process:Identify and verify the identity of the counterpart or clientIdentify and verify the identity of the beneficial owner of that client, i.e. who is ultimately behind the clientEstablish the purpose of the business relationship, finding out what the client will do with the loan and how it will be paid backMonitor the KYC file, updating it with any change in the client’s shareholders or other information, asking for new documents and data, and continually checking who the client really is.Tweet us @EIBMatt or @AllarTankler. We love to hear about any other questions you’d like us to pose about financial issues.Subscribe to ‘A Dictionary of Finance’ podcast via the iPhone podcast app, Stitcher or Spotify. Please do rate the podcast on those platforms, too. Hosted on Acast. See acast.com/privacy for more information.

Learn about the social and business reasons for the “technical assistance” that helps companies and public institutions make their projects bankable.Technical assistance helps make projects bankable by preparing documents, carrying out studies, examining financing alternatives and assisting with contracts, among other things. The aim is to prepare a project to deliver on the purposes for which it was originally conceived.The European Commission finances technical assistance programmes to help participants in a range of business sectors. A Dictionary of Finance podcast called on experts from two of these technical assistance programmes to explain how they work.“Technical assistance is about helping beneficiaries,” says Mark Mawhinney, head of division for the European Investment Advisory Hub. The Hub provides technical assistance under the Investment Plan for Europe and is a partnership between the Commission and the European Investment Bank.The Hub aims to help fill markets gaps. As Mark explains, a market gap occurs when the private sector is not actively engaging in a particular area, because of a lack of demand or some economic structural problem.Reinhard Six, senior engineer in the European Investment Bank’s Energy Efficiency and Small-scale Energy Projects division, does a lot of his work under the umbrella of another joint EIB/Commission programme called European Local Energy Assistance (ELENA). For example, that includes energy audits, which are different from the kinds of audits we talked about in our episode on the balance sheet.An energy audit looks at the energy performance of a building by assessing its technical systems, such as the boiler. It recommends measures to improve the energy efficiency of the building by, for example, replacing the windows.Tweet us @EIBMatt or @AllarTankler. We’d love to hear questions you’d like us to pose about financial issues and your ideas for the subjects of future episodes.Subscribe to ‘A Dictionary of Finance’ podcast via the iPhone podcast app, Stitcher or Spotify. Please rate the podcast on those platforms, too. Hosted on Acast. See acast.com/privacy for more information.

Completely by coincidence, the April 1 episode of ‘A Dictionary of Finance’ podcast by the European Investment Bank starts with a comedy sketch acted by Ildiko Buruts, head of the contract reviews and amendments unit, and Christian Kyster, head of the loan administration unit at the Bank. For your listening pleasure, they present a hilarious anecdote about the back office!We invited Christian and Ildiko out of the back office for about 25 minutes or so to tell us about what goes on there.Christian delivers a stunning analogy between the back office of a bank and the kitchen of a restaurant. If a diner wants his steak tartare with mayo and marshmallows, what does the waiter/waitress do? He or she goes to the kitchen to figure out if such a dish can be served. That’s exactly what the back office of a bank does, figuring out how the deal proposed by the front-office can be carried out.Sticking with culinary vibes, we also discuss how a decrease of plain vanilla financial products means more work for the back office, because back office staff have to figure out how to hook up tailor-made financial solutions to the various back office systems that are needed to make it happen. Hosted on Acast. See acast.com/privacy for more information.

If you were anything like us, you imagined the treasury being something like Uncle Scrooge’s pool of coins in Duck Tales, into which he would dive regularly (and, mysteriously, not causing himself any injuries). You might be surprised to find out the ultimate goal of the treasury is to end every day with zero in cash.This is especially impressive given the amounts of money that passes through the treasury of a bank. The European Investment Bank’s treasury last year settled EUR 8.5 trillion! While our total lending volume for the group was “only” EUR 78 billion.Francisco Castro Gutierrez, head of the treasury back-office at the EIB, explains that this is due to the different “wheel sizes” of the treasury, the borrowing, and the lending operations of the bank. The average maturity of our treasury operations is 3 months, compared to 7-8 years for our borrowing, and closer to 10 years for our lending. All the money keeps going round and round in the treasury. You need fast fingers to keep verifying and validating all those transactions – almost as fast as if you were playing flamenco guitar!Francisco, who just so happens to play the flamenco guitar, explains to us what the back-office, the middle-office and the front-office do in the treasury department. This includes reconciliation of accounts, claim processing, funding the short positions, squaring at the end of the day, and a lot more – which you will learn about in this episode.You will also find out:Why you should be a morning-person if you want to work in the treasury back officeThat, in the future, you will need people to control robots in the back office: to make sure that the algorithms don’t go crazy.How all transactions are verified and validated by three pairs of eyes (known as the “six eyes rule.”Credit for the flamenco music on the podcast goes to: http://www.purple-planet.com Hosted on Acast. See acast.com/privacy for more information.

A fund of funds gives investors a diverse portfolio and gives fund managers long-term capital to invest.There are three phases to the lifetime of a fund of funds:Fundraising, which takes 12 to 18 monthsThe investment period, where the fund makes new investments over the course of about five yearsThe divestment period, during which the fund exits its investments, takes its profits and returns the money to its investors.So A Dictionary of Finance got three experts on funds of funds from the European Investment Bank to come on the podcast and explain all this and more. They were all pretty good fun.Listen to the podcast to find out:What it means to subscribe to a fund. (It’s harder than subscribing to this podcast on iTunes, Spotify, or YouTube. You should definitely subscribe to A Dictionary of Finance right now, but we can’t recommend whether you should subscribe to a fund of funds. It’s not for everyone.)What you’re committing to do when you subscribe to a fund of funds. Turns out, you don’t give the fund manager your money right away. But when the manager calls for your money to finance an investment, you'd better have it or the consequences are dire.Why diversification is an advantage of funds of funds. What’s a limited partnership? An agreement to commit a specific amount of capital to a fund—and no more than that amount. That’s the “limited” part of the limited partnership.Subscribe to ‘A Dictionary of Finance’ podcast and get a new episode on your phone every week. Subscribe and listen on iTunes, Spotify, or YouTube.Let us know what you think or what you’d like to hear more about on the podcast. You’ll find us on Twitter at @EIBMatt or @AllarTankler. Hosted on Acast. See acast.com/privacy for more information.

It is pretty obvious that you can empower women by providing more financing for female entrepreneurs, and financing technology that makes banking services accessible to women in remote places. Or by investing in the care economy, services for child and elderly care, where women carry typically the larger burden.What may be less evident is that financing parking spaces, roads and public transport may have a gender impact. Even in France, 90% of women have experienced sexual harassment using public transport, so it’s important that new trains have dedicated compartments for women. It’s important that parking garages are well lit. When road engineers choose bridges for pedestrians, rather than underpasses, they’ve done something that makes the road a safer environment for women.Eleni Kyrou and Julia Chambers are social development specialist working in the safeguards and quality management department of the European Investment Bank. On A Dictionary of Finance podcast this week they explain how finance can have an impact on gender equality, the EIB’s strategy for gender equality and women’s economic empowerment, and much more. Hosted on Acast. See acast.com/privacy for more information.

If you like Italian mineral water, maybe you’d also enjoy an Italian hydrobond. It won’t rehydrate you or go nicely with a fettucine Alfredo, but it might be a good long-term investment and it will keep water prices under control for the consumer. “It’s a sexy name for something quite plain,” says Thomas van Gilst, head of water security and resilience at the European Investment Bank. “The idea was to make a product that institutional investors would want to buy.”Thomas and colleague Patricia Castellarnau, an economist, tell the story of the creation of the hydrobond on A Dictionary of Finance podcast. It all started with a group of small Italian water companies and the financial crisis.The companies needed to invest for the long-term in expensive water infrastructure. But because of the financial crisis and because they were relatively small companies banks would only lend to them for the short-term.That was a problem. If the companies took those short-term loans, they would have to increase charges to their customers to pay back the money quickly, rather than spreading the cost over many years.So the EIB figured out a way to help.By packaging the smaller companies’ notes into a single, bigger bond, the deal attracted institutional investors, such as pension funds, which otherwise wouldn’t have financed the water companies.Thomas and Patricia have worked on hydrobonds that support EUR 500 million of investment so far, with deals signed in the last four years. “If the companies hadn’t done this, it would’ve taken much longer to implement their investment programmes,” says Patricia.On the podcast, Thomas also fills us in on the economic implications of lack of water security. He points out that 90% of economic activity stops within a couple of days if there’s no access to water.How long could you stay at work without water? On the podcast we decided we’d head home after about half an hour without lubrication. Let us know on Twitter if you could last longer. Tweet us @EIBMatt or @AllarTankler. We’d also love to hear other questions you’d like us to pose about financial issues. Hosted on Acast. See acast.com/privacy for more information.

Did you know that, most likely, you are a beneficiary of structured finance? So before you go bashing opaque financing structures that you think caused the financial crisis a decade ago, please make sure you know what you are talking about – or at least give this episode a listen.Milena Messori, head of division for EIB’s intermediated finance for micro-, small- and medium-sized enterprises and Karen Cannenterre, structured finance officer within that same division, explain to us how structured finance has allowed banks to provide mortgages to a much broader range of people. They do so, basically, by selling those mortgages on to investors who are interested in taking a risk with people like you and us. So a hedge fund might be willing to even risk it with Allar’s mortgage. And every conservative pension fund would naturally buy a piece of ever-dependable Matt’s mortgage.This is one example of structured finance: structuring financing based on the risk-appetite of different types of investors, and thus bringing more investors, more money into the capital market.It is also an example of securitization: making something that you can’t invest in (Matt’s mortgage with a bank) into a security that you could invest in.It might also be an example of a synthetic securitization: in case Matt’s bank has not created a special purpose vehicle (a separate company) to dump off mortgages to, and has simply signed a contract specifying which mortgages are up for grabs for a given investor – that is considered a synthetically structured deal.And it is also an example of an asset-backed security: because the security (the bond the bank issues) the investor is buying is backed by Matt’s apartment.If then someone buys up a subordinated security in that tranche of mortgages, and Matt defaults on his mortgage… never mind, he wouldn’t do that. If then Allar defaults on his mortgage, and it turns out the housing market is going through a downturn (hasn’t ever happened in Luxembourg, but who knows, right) and the asset – the apartment – does not cover the loan value anymore, the subordinated security owner takes that loss, saving all the other investors. This is what is called a first loss piece – a riskier, and thus potentially also more rewarding, piece of the financing. It functions as a credit enhancement to the tranche, and potentially to the company selling a package of assets, and is another example of structured finance.   Hosted on Acast. See acast.com/privacy for more information.