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The 50 words you need to know for banking interviews

However good your resume and research, you won’t necessarily do well at a banking interview unless you know how to talk like a banker.  The investment banking world is full of jargon, technical terms and slang, and not understanding the language is a real giveaway.  When you’re asked a question, you don’t want to be asking someone what they mean, or even worse, guessing.  Here is our glossary of more than fifty of the words and phrases which occasionally trip up outsiders.

Advisory: Part of the Investment Banking Division.  Similar to M&A, but with slightly more emphasis on providing advice and less on providing finance.  Often the main or only business line of specialised boutiques.

Analyst: The most junior rank in banking, corresponding to the graduate training scheme.  Analyst programmes last for two or three years.

Associate: The second most junior rank.  Associates are either promoted from the Analyst programme or recruited from business schools with MBA qualifications.

Back office: Refers to staff who are responsible for settlement, administrative tasks and maintaining IT systems.  Some back office jobs, particularly in IT development, can be very well paid, but in general they do not earn as much as the front office.

Bank: A financial corporation that operates with borrowed money and organises the provision of capital to other companies. Most jobs in banking will be with actual banks – holders of a banking licence who are allowed to take deposits from the public and which have access to central bank funding.  But there are some investment banks (particularly corporate finance boutiques) which use the name but which are technically brokerages or advisory practices.

Bloomberg: The Bloomberg news service provides the terminals which are the industry standard for news and price data.

Bonds: A bond is a loan which has been issued on standardised terms so that it can be split up and traded.  The interest payments are called coupons.  Bonds can be issued by governments, banks or industrial companies; they can also be created by bundling up small retail loans (in which case they are called “securitisations”).  Bond issuance is the main job of Debt Capital Markets, and trading them takes place either on Rates or Credit desks, depending on the issuer.

Boutique: A small investment bank, usually concentrating on M&A advisory.

Brokerage: A company which matches buyers and sellers of securities, making money either out of charging a percentage commission, or out of the spread.

Buy side: People who work at hedge funds, mutual funds or in private equity.  These are the clients of the investment banks, with the exception that someone working for a corporate client of IBD would not usually be called “buy side”.

Capital markets: The part of Investment Banking Division which is responsible for helping corporate clients to raise money from the bond and equity markets.  Capital markets bankers need to gather feedback from investors, decide on the pricing of securities and liaise with Sales & Trading to get the securities sold.

Cash market: As opposed to “derivatives market”, the market in which “underlying” securities are bought and sold rather than derivative claims on them.  Not to be confused with “money market”.

Compliance: The middle office team who are responsible for ensuring that other parts of the bank comply with all relevant laws and regulations.  Compliance officers are responsible for arranging training, monitoring activity and providing advice to employees.

Corporate finance:  Another name for Capital Markets, with more emphasis on strategic advice on capital raising rather than execution and underwriting.

Coverage: A team crossing both advisory and capital markets specialisations, aiming to service the requirements of a particular client or sector.

Credit: In FICC divisions, “credit” refers to fixed income products other than government bonds and money market instruments, where the credit risk of the issuer is a major driver of the value of the security.

DCM: Debt capital markets.

Derivatives: Contracts between two parties which agree to exchange amounts of money based on something else.  Most often, the “something else” (known as “the underlying”) is a securities price, so you have “equity derivatives” based on share prices and “rates derivatives” based on interest rates.  This isn’t necessarily the case, though; there are “weather derivatives” which pay out based on average temperature or rainfall, and “credit derivatives” which pay out when a company defaults.

Director: The rank between Vice President and Managing Director.  Directors will generally have significant management responsibility or be expected to look after clients of their own.

Distribution: The final stage of a capital markets transaction, coming after underwriting.  This is the stage in which the securities are sold to investors.

ECM: Equity capital markets.

Equities: Shares; securities which represent part ownership in a company.  In an investment bank, the word on its own refers to part of the Sales & Trading division, which will generally trade equity derivatives as well as cash equities, and may include the Research and Prime Brokerage operations as well.

Execution: The activity of actually making a transaction happen, once it has been agreed with the client.  In Sales & Trading, this means finding a buyer to match the seller (or vice versa) at the best price possible.  In IBD, it means carrying out the legal and administrative work to make the deal happen, and potentially conducting meetings to ensure that it has support from investors.

FICC: Fixed Income, Currencies and Commodities, one of the two main parts of a Sales & Trading division.  Responsible for trading all instruments which aren’t equities or equity derivatives.

FIG: Financial Institutions Group, usually one of the largest teams within  Investment Banking.  FIG teams concentrate on providing capital markets and advisory services to other banks and insurance companies.

Front office: Refers to banking staff who either make decisions on applying the firm’s capital or have direct contact with clients.  Front office jobs are usually (but not always) best paid, and often require regulatory authorization.

Hedge Fund: An investment fund marketed only to other institutional investors and very rich individuals.  Hedge funds typically charge higher fees than retail mutual funds and have fewer restrictions on their investment strategies.

Institutional investor: A pension fund, mutual fund, hedge fund or sovereign wealth fund, investing in securities.  The normal client of a Sales & Trading desk.

Investment Banking Division: Also known as IBD, this is one of the two main divisions in an investment bank.  As opposed to Sales & Trading, IBD is concerned with providing financial solutions to issuers of securities rather than to investors.  It is often further divided into Capital Markets versus M&A Advisory.  Note that “investment banking” is also often used as a generic term including Sales & Trading, so it’s important to understand which sense someone is using.

IPO: An Initial Public Offering.  The sale for the first time of a company’s shares to the general public on a stock exchange.  IPOs are run by the Equity Capital Markets team in an investment bank and they can be extremely profitable transactions.

M&A: Mergers and Acquisitions.  Bankers working in Investment Banking Division who provide advice to companies on taking over and buying other companies, either on an agreed or a hostile basis.  This includes strategic advice on the actual deal, advice on the valuation of targets and arranging financing.

MD: Managing Director, the most senior rank in investment banking.  MDs are generally expected to be able to originate deals and generate revenue.

Middle office: Generally refers to better-paid and more senior back office roles.  Compliance and Risk Management staff would be considered middle-office, as would senior prime brokerage staff who had contact with clients as well as managing admin tasks.

Money market: The market for short term fixed income securities, used by banks and industrial companies to smooth out differences in the timing of their incoming and outgoing payments.

Origination: In investment banking generally and particularly in capital markets, the process of persuading a client to carry out a transaction with your bank.

Primary / Secondary: The first time securities are sold to the public, this is the “primary” market.  Trading in them afterwards is “secondary”.  The distinction roughly matches that between Capital Markets and Sales & Trading internally within banks.  If a company sells shares without raising new capital (for example, because the founder wants to reduce their stake) this is also called a “secondary” issue.

Prime brokerage: Not to be confused with “Brokerage”.  Prime brokerage teams provide services to hedge funds, such as looking after their settlement and back office functions and providing financing to them.

Private equity: Investment funds which buy whole companies or large ownership stakes in specifically negotiated deals rather than shares quoted on a stock exchange.  The term includes “venture capital (VC)”, which is focused on new companies and startups) and “financial sponsors” or “leveraged buyout firms (LBO)”, which is focused on taking over existing companies to be sold later on for a profit.

Quant: Short for “quantitative analyst”, this refers to a specialist in applied mathematics working on securities practices.  There are “front office quants”, who aim to design profitable trading systems, “middle office quants” who design systems for efficient execution of trades and “risk management quants” who measure probabilities of loss.

Rates: In FICC divisions, “rates” is the opposite of “credit” – it refers to bonds and derivatives where the value is driven by expectations about interest rates and credit risk can largely be ignored.

Research: The teams in Sales & Trading which are responsible for valuing securities and issuing recommendations to investors as to whether to buy or sell them.  As well as company experts, research divisions will usually employ economic forecasters and “strategists” who attempt to forecast bond and equity markets as a whole.

Risk Management: The division responsible for measuring the bank’s exposure to risks based on the securities it holds and the loans it has extended, and setting limits on them. 

Sales and Trading: One side of the most important divide in an investment bank.  S&T divisions, sometimes called “Global Markets”, deal with brokerage activities.  Research divisions are generally within Sales & Trading, as is prime brokerage.  Sales & Trading is generally further divided into Equities and FICC.

Securities: Tradeable claims on future payments.  Shares (equities), bonds (“Fixed income”) or derivatives.

Securitisation: The process of buying a large number of smaller loans (mortgages or credit card debts, for example) and bundling them into a Special Purpose Vehicle which then issues bonds to the public, effectively transforming the loans into securities

Sell side: People who work at investment banks, speaking to clients on the buy side.

Settlement: The activity of making sure that records are updated and payments are sent to the right place after a securities transaction has been executed.

SPAC: A Special Purpose Acquisition Company – an SPV company which carries out an IPO despite having no actual business, to raise cash in order to acquire an existing company.  A technique often used by financial sponsors as a way to get a stock market quotation, SPAC teams cross the boundary between Capital Markets and M&A.

Special Purpose Vehicle (SPV): A “brass plate” company formed by a bank in order to be the legal owner of some assets. An SPV generally has no staff or operations of its own.  SPVs are a key building block in Structuring and in Securitisation.

Spread: The difference between the price quoted by a brokerage to buy securities (the bid) and the price quoted to sell the same securities (the ask). Buying at the bid and selling at the ask is how brokerages make money.  The word “spread” can also refer to the difference between two interest rates.

Structuring: Designing complex securities (usually involving derivatives) to achieve particular goals for either the investor or the issuer – these can include specific tax treatment, particular mixtures of risk and reward, or the bundling up of small loans into a larger security which can be publicly traded.  This activity crosses the divide between Investment Banking and Sales & Trading and might be found on either side depending on how a bank is organised.

Syndicate: A specialist team within Capital Markets which handles communication and relationships with other banks in transactions which involve a large number of investment banks.

Underwriting: The practice of buying securities from the issuer, then distributing them to the public.  During an underwriting, the bank is at risk because it is holding the securities and so is exposed to movements in their value; it takes a fee to compensate for this.  Underwriting is one of the activities managed by Capital Markets teams.

VP: Vice President, the rank above Associate and below Director.  VPs usually have five to seven years’ experience and are the most junior of the management roles.

Contact: in the first instance. Whatsapp/Signal/Telegram also available (Telegram: @SarahButcher)

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Photo by Romain Vignes on Unsplash

AUTHORDaniel Davies Insider Comment

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