HSBC 2011 Annual Report Download - page 428

HSBC HOLDINGS PLC
Shareholder Information (continued)
Glossary
426
Term Definition
A
Adjustable-rate mortgages
(‘ARM’s)
Mortgage loans in the US on which the interest rate is periodically changed based on a reference price.
These are included within ‘affordability mortgages’.
Affordability mortgages Mortgage loans where the customer’s monthly payments are set out at a low initial rate, either variable or
fixed, before resetting to a higher rate once the introductory period is over.
Agency exposures Exposures to near or quasi-government agencies including public sector entities fully owned by
government carrying out non-commercial activities, provincial and local government authorities,
development banks and funds set up by government.
Alt-A A US description for loans regarded as lower risk than sub-prime, but with higher risk characteristics than
lending under normal criteria.
Arrears Customers are said to be in arrears (or in a state of delinquency) when they are behind in fulfilling their
obligations, with the result that an outstanding loan is unpaid or overdue. When a customer is in arrears,
the total outstanding loans on which payments are overdue are described as delinquent.
Asset-backed securities
(‘ABS’s)
Securities that represent an interest in an underlying pool of referenced assets. The referenced pool can
comprise any assets which attract a set of associated cash flows but are commonly pools of residential
or commercial mortgages.
B
Back-testing A statistical technique used to monitor and assess the accuracy of a model, and how that model would
have performed had it been applied in the past.
Bail-in/-inable debt Bail-in refers to imposition of losses at the point of non viability (but before insolvency) on bank liabilities
(bail-inable debt) that are not exposed to losses while the institution remains a viable, going concern.
Whether by way of write-down or conversion into equity, this has the effect of recapitalising the bank
(although it does not provide any new funding).
Bank levy A levy that applies to UK banks, building societies and the UK operations of foreign banks from 1 January
2011. The amount payable is based on a percentage of the Group’s consolidated liabilities and equity as
at 31 December 2011 after deducting certain items the most material of which are those related to
insured deposit balances, tier 1 capital, insurance liabilities, high quality liquid assets and items subject
to a legally enforceable net settlement agreement.
Basel II The capital adequacy framework issued by the Basel Committee on Banking Supervision in June 2006 in
the form of the ‘International Convergence of Capital Measurement and Capital Standards’, amended
by subsequent changes to the capital requirements for market risk and re-securitisations, commonly
known as Basel 2.5, which took effect 31 December 2011.
Basel III In December 2010, the Basel Committee issued ‘Basel III rules: A global regulatory framework for more
resilient banks and banking systems’ and ‘International framework for liquidity risk measurement,
standards and monitoring’. Together these documents present the Basel Committee’s reforms to
strengthen global capital and liquidity rules with the goal of promoting a more resilient banking sector.
In June 2011, the Basel Committee issued a revision to the former document setting out the finalised
capital treatment for counterparty credit risk in bilateral trades. The Basel III requirements will be
phased in starting on 1 January 2013 with full implementation by 1 January 2019.
C
Capital conservation buffer A capital buffer, prescribed by regulators under Basel III, and designed to ensure banks build up capital
buffers outside periods of stress which can be drawn down as losses are incurred. Should a bank’s
capital levels fall within the capital conservation buffer range, capital distributions will be constrained
by the regulators.
Capital planning buffer A capital buffer, prescribed by the FSA under Basel II, and designed to ensure banks build up capital
buffers outside periods of stress which can be drawn down as losses are incurred. Should a bank’s
capital levels fall within the capital planning buffer range, a period of heightened regulatory interaction
would be triggered.
Collateralised debt obligation
(‘CDO’)
A security issued by a third-party which references ABSs and/or certain other related assets purchased by
the issuer. CDOs may feature exposure to sub-prime mortgage assets through the underlying assets.
Collectively assessed
impairment
Impairment assessment on a collective basis for homogeneous groups of loans that are not considered
individually significant and to cover losses which have been incurred but have not yet been identified
on loans subject to individual assessment.
Commercial paper (‘CP’) An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts
receivable, inventories and meeting short-term liabilities. The debt is usually issued at a discount,
reflecting prevailing market interest rates.
Commercial real estate Any real estate investment, comprising buildings or land, intended to generate a profit, either from capital
gain or rental income.
Common equity tier 1 capital The highest quality form of regulatory capital under Basel III that comprises common shares issued and
related share premium, retained earnings and other reserves excluding the cash flow hedging reserve,
less specified regulatory adjustments.