RBS 2011 Annual Report Download - page 479

RBS Group 2011 477
Commercial paper conduit - a special purpose entity that issues
commercial paper and uses the proceeds to purchase or fund a pool of
assets. The commercial paper is secured on the assets and is redeemed
either by further commercial paper issuance, repayment of assets or
liquidity drawings.
Commercial real estate -freehold and leasehold properties used for
business activities. Commercial real estate includes office buildings,
industrial property, medical centres, hotels, retail stores, shopping
centres, agricultural land and buildings, warehouses, garages etc.
Constant proportion portfolio insurance notes (CPPI notes) - CPPI is the
name given to a trading strategy that is designed to ensure that a fixed
minimum return is achieved either at all times or more typically, at a set
date in the future. Essentially the strategy involves continuously re-
balancing the portfolio of investments during the term of the product
between performance assets and safe assets using a pre-set formula.
CPPI notes provide investors with a return linked to a CPPI portfolio.
Contractual maturity -the date in the terms of a financial instrument on
which the last payment or receipt under the contract is due for settlement.
Core Tier 1 capital -called-up share capital and eligible reserves plus
equity non-controlling interests, less intangible assets and other
regulatory deductions.
Core Tier 1 capital ratio -core Tier 1 capital as a percentage of risk-
weighted assets.
Cost:income ratio -operating expenses as a percentage of total income.
Coverage ratio - impairment provisions as a percentage of impaired
loans.
Covered bonds - debt securities backed by a portfolio of mortgages that
are segregated from the issuer's other assets solely for the benefit of the
holders of the covered bonds.
CRD III - the CRD III package came into force on 1 January 2011. It
requires higher capital requirements for re-securitisations; upgrades
disclosure standards for securitisation exposures; strengthens capital
requirements for the trading book; and introduces new remuneration
rules.
CRD IV - in July 2011, the European Commission published its proposed
legislation for a Capital Requirements Directive and a Capital
Requirements Regulation, which together form the CRD IV package. The
package implements the Basel III capital proposals and also includes
new proposals on sanctions for non-compliance with prudential rules,
corporate governance and remuneration. It is due to be implemented
from 1 January 2013 with transitional arrangements for some of its
requirements.
Credit default swap (CDS) - a contract where the protection seller
receives premium or interest-related payments in return for contracting to
make payments to the protection buyer upon a defined credit event in
relation to a reference financial asset or portfolio of financial assets.
Credit events usually include bankruptcy, payment default and rating
downgrades.
Credit derivative product company (CDPC) - a special purpose entity that
sells credit protection under credit default swaps or certain approved
forms of insurance policies. Sometimes they can also buy credit
protection. CDPCs are similar to monoline insurers. However, unlike
monoline insurers, they are not regulated as insurers.
Credit derivatives - contractual agreements that provide protection
against a credit event on one or more reference entities or financial
assets. The nature of a credit event is established by the protection buyer
and protection seller at the inception of a transaction, and such events
include bankruptcy, insolvency or failure to meet payment obligations
when due. The buyer of the credit derivative pays a periodic fee in return
for a payment by the protection seller upon the occurrence, if any, of a
credit event. Credit derivatives include credit default swaps, total return
swaps and credit swap options.
Credit enhancements - techniques that improve the credit standing of
financial obligations; generally those issued by an SPE in a securitisation.
External credit enhancements include financial guarantees and letters of
credit from third-party providers. Internal enhancements include excess
spread - the difference between the interest rate received on the
underlying portfolio and the coupon on the issued securities; and over-
collateralisation - on securitisation, the value of the underlying portfolio is
greater than the securities issued.
Credit risk -the risk that the Group will incur losses owing to the failure of
customers to meet their financial obligations to the Group.
Credit risk assets -loans and advances (including overdraft facilities),
instalment credit, finance lease receivables and other traded instruments
across all customer types.
Credit risk mitigation -techniques such as the taking of collateral or
obtaining a guarantee or other form of credit protection from a related or
third party that reduce the credit risk associated with an exposure.
Credit risk spread - the difference between the coupon on a debt
instrument and the benchmark or the risk-free interest rate for the
instrument's maturity structure. It is the premium over the risk-free rate
required by the market for the credit quality of a particular debt
instrument.
Credit valuation adjustments - adjustments to the fair values of derivative
assets to reflect the creditworthiness of the counterparty.