RBS 2011 Annual Report Download - page 478

476 RBS Group 2011
Glossary of terms
Adjustable rate mortgage (ARM) - in the US, a variable-rate mortgage.
ARMs include: hybrid ARMs which typically have a fixed-rate period
followed by an adjustable-rate period; interest-only ARMs where interest
only is payable for a specified number of years, typically for three to ten
years; and payment-option ARMs that allow the borrower to choose
periodically between various payment options.
Alt-A (Alternative A-paper) - a US description for mortgage loans with a
higher credit quality than sub-prime loans but with features that disqualify
the borrower from a traditional prime loan. Alt-A lending characteristics
include limited documentation; high loan-to-value ratio; secured on non-
owner occupied properties; and debt-to-income ratio above normal limits.
Arrears - the aggregate of contractual payments due on a debt that have
not been met by the borrower. A loan or other financial asset is said to be
'in arrears' when payments have not been made. When a customer is in
arrears, the entire outstanding balance is said to be delinquent (see
Delinquency).
Asset-backed commercial paper (ABCP) - a form of asset-backed
security generally issued by a commercial paper conduit.
Asset-backed securities (ABS) - securities that represent interests in
specific portfolios of assets. They are issued by a special purpose entity
following a securitisation. The underlying portfolios commonly comprise
residential or commercial mortgages but can include any class of asset
that yields predictable cash flows. Payments on the securities depend
primarily on the cash flows generated by the assets in the underlying pool
and other rights designed to assure timely payment, such as guarantees
or other credit enhancements. Collateralised bond obligations,
collateralised debt obligations, collateralised loan obligations, commercial
mortgage backed securities and residential mortgage backed securities
are all types of ABS.
Asset protection scheme credit default swap - in 2009, the Group became
party to the Asset Protection Scheme under which it purchased credit
protection over a portfolio of specified assets and exposures (“covered
assets”) from Her Majesty’s Treasury acting on behalf of the UK
Government. The contract is accounted for as a derivative financial
instrument. It is recognised at fair value and included in Derivatives on
the balance sheet. Changes in its fair value are recognised in profit or
loss within Income from trading activities.
Assets under management - assets managed by the Group on behalf of
clients.
Bank levy - a levy that applies to certain UK banks, building societies and
the UK operations of foreign banks from 1 January 2011. The levy is
payable based on a percentage of the chargeable equity and liabilities of
the bank as at the balance sheet date.
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’.
Basel III - in December 2010, the Basel Committee on Banking
Supervision issued final rules: ‘Basel III: A global regulatory framework
for more resilient banks and banking systems’ and ‘Basel III: International
framework for liquidity risk measurement, standards and monitoring’.
These strengthened global regulatory standards on bank capital
adequacy and liquidity and will be phased in from 2013 with full
implementation by 1 January 2019.
Basis point - one hundredth of a per cent i.e. 0.01 per cent. 100 basis
points is 1 per cent. Used when quoting movements in interest rates or
yields on securities.
Certificates of deposit (CDs) - bearer negotiable instruments
acknowledging the receipt of a fixed term deposit at a specified interest
rate.
Collateralised bond obligations (CBOs) - asset-backed securities for
which the underlying asset portfolios are bonds, some of which may be
sub-investment grade.
Collateralised debt obligations (CDOs) - asset-backed securities for
which the underlying asset portfolios are debt obligations: either bonds
(collateralised bond obligations) or loans (collateralised loan obligations)
or both. The credit exposure underlying synthetic CDOs derives from
credit default swaps. The CDOs issued by an individual vehicle are
usually divided in different tranches: senior tranches (rated AAA),
mezzanine tranches (AA to BB), and equity tranches (unrated). Losses
are borne first by the equity securities, next by the junior securities, and
finally by the senior securities; junior tranches offer higher coupons
(interest payments) to compensate for their increased risk.
Collateralised debt obligation squared (CDO-squared) - a type of
collateralised debt obligation where the underlying asset portfolio
includes tranches of other CDOs.
Collateralised loan obligations (CLOs) - asset-backed securities for which
the underlying asset portfolios are loans, often leveraged loans.
Collectively assessed loan impairment provisions - impairment loss
provisions in respect of impaired loans, such as credit cards or personal
loans, that are below individual assessment thresholds. Such provisions
are established on a portfolio basis, taking account of the level of arrears,
security, past loss experience, credit scores and defaults based on
portfolio trends.
Commercial mortgage backed securities (CMBS) -asset-backed
securities for which the underlying asset portfolios are loans secured on
commercial real estate.
Commercial paper (CP) - unsecured obligations issued by a corporate or
abank directly or secured obligations (asset-backed CP), often issued
through a commercial paper conduit, to fund working capital. Maturities
typically range from two to 270 days. However, the depth and reliability of
some CP markets means that issuers can repeatedly roll over CP
issuance and effectively achieve longer term funding. CP is issued in a
wide range of denominations and can be either discounted or interest-
bearing.
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