RBS 2012 Annual Report Download - page 533

RBS GROUP 2012
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Exposure at default (EAD) - an estimate of the expected level of
utilisation of a credit facility at the time of a borrower's default. The EAD
may be higher than the current utilisation (e.g. where further drawings are
made under a revolving credit facility before default) but will not typically
exceed the total facility limit.
Fannie Mae (Federal National Mortgage Association) - a US Government
Sponsored Enterprise. It buys mortgages, principally originated by banks,
on the secondary market, pools them, and sells them as residential
mortgage-backed securities to investors on the open market. Its
obligations are not explicitly guaranteed by the full faith and credit of the
US Government.
Federal Agencies - US federal agencies are independent bodies
established by the US Government for specific purposes such as the
management of natural resources, financial oversight or national security.
A number of agencies, including Ginnie Mae, issue or guarantee publicly
traded debt securities.
Federal Home Loan Mortgage Corporation - see Freddie Mac.
Federal National Mortgage Association - see Fannie Mae.
FICO score - a credit score calculated using proprietary software
developed by the Fair Isaac Corporation in the US from a consumer's
credit profile. The scores range between 300 and 850 and are used in
credit decisions made by banks and other providers of credit.
Financial Services Compensation Scheme (FSCS) - the UK's statutory
fund of last resort for customers of authorised financial services firms. It
pays compensation if a firm is unable to meet its obligations. The FSCS
funds compensation for customers by raising management expenses
levies and compensation levies on the financial services industry.
First/second lien - a lien is a charge such as a mortgage held by one
party, over property owned by a second party, as security for payment of
some debt, obligation, or duty owed by that second party. The holder of a
first lien takes precedence over all other encumbrances on that property
i.e. second and subsequent liens.
Forbearance - forbearance takes place when changes to the contractual
payment terms of a retail loan are agreed in response to the borrower's
financial difficulties.
Forward contract - a contract to buy (or sell) a specified amount of a
physical or financial commodity, at an agreed price, at an agreed future
date.
Freddie Mac (Federal Home Loan Mortgage Corporation) - a US
Government Sponsored Enterprise. It buys mortgages, principally
originated by thrifts, on the secondary market, pools them, and sells them
as residential mortgage-backed securities to investors on the open
market. Its obligations are not explicitly guaranteed by the full faith and
credit of the US Government.
Funding and liquidity risk - the risk that the Group does not have sufficient
financial resources to meet its commitments when they fall due, or can
secure them only at excessive cost.
Futures contract - a contract which provides for the future delivery (or
acceptance of delivery) of some type of financial instrument or commodity
under terms established at the outset. Futures differ from forward
contracts in that they are traded on recognised exchanges and rarely
result in actual delivery; most contracts are closed out prior to maturity by
acquisition of an offsetting position.
G10 - the Group of Ten comprises the eleven industrial countries
(Belgium, Canada, France, Germany, Italy, Japan, the Netherlands,
Sweden, Switzerland, the United Kingdom and the United States) that
have agreed to participate in the International Monetary Fund’s (IMF’s)
General Arrangements to Borrow.
Ginnie Mae (Government National Mortgage Association) - a US
Government Agency that guarantees investors the timely payment of
principal and interest on mortgage-backed securities for which the
underlying asset portfolios comprise federally insured or guaranteed
loans - mainly loans insured by the Federal Housing Administration or
guaranteed by the Department of Veterans Affairs. Ginnie Mae
obligations are fully and explicitly guaranteed as to the timely payment of
principal and interest by the full faith and credit of the US Government.
Government Sponsored Enterprises (GSEs) - a group of financial
services corporations created by the US Congress. Their function is to
improve the efficiency of capital markets and to overcome statutory and
other market imperfections which otherwise prevent funds from moving
easily from suppliers of funds to areas of high loan demand. They include
Fannie Mae and Freddie Mac.
Gross yield - the interest rate earned on average interest-earning assets
i.e. interest income divided by average interest-earning assets.
Haircut - a downward adjustment to collateral value to reflect its nature,
any currency or maturity mismatches between a credit risk mitigant and
the underlying exposure to which it is being applied.
Hedge funds - pooled investment vehicles that are not widely available to
the public; their assets are managed by professional asset managers
who participate in the performance of the fund.
Home equity loan - a type of loan in which the borrower uses the equity in
their home as collateral. A home equity loan creates a charge against the
borrower's house.
Home loan - see Residential mortgage.
Impaired loans - all loans for which an impairment provision has been
established; for collectively assessed loans, impairment loss provisions
are not allocated to individual loans and the entire portfolio is included in
impaired loans.
Impairment allowance - see Loan impairment provisions.