RBS 2012 Annual Report Download - page 537

RBS GROUP 2012
535
Sovereign exposures - exposures to governments, ministries,
departments of governments and central banks.
Special purpose entity (SPE) - an entity created by a sponsor, typically a
major bank, finance company, investment bank or insurance company.
An SPE can take the form of a corporation, trust, partnership, or a limited
liability company. Its operations are typically limited for example in a
securitisation to the acquisition and financing of specific assets or
liabilities.
Standardised approach - a method used to calculate credit risk capital
requirements under Pillar 1 of Basel II. In this approach the risk weights
used in the capital calculation are determined by regulators. For
operational risk, capital requirements are determined by multiplying three
years’ historical gross income by a percentage determined by the
regulator. The percentage ranges from 12 to 18%, depending on the type
of underlying business being considered.
Stressed value-at-risk (SVaR) - a VaR measure using historical data from
a one year period of stressed market conditions. For the purposes of
calculating regulatory SVaR, a time horizon of ten trading days is
assumed at a confidence level of 99%. (Refer to Value-at-risk definition
below).
Stress testing - a technique used to evaluate the potential effects on an
institution’s financial condition of an exceptional but plausible event
and/or movement in a set of financial variables.
Structured credit portfolio (SCP) - a portfolio of certain of the Group’s
illiquid assets - principally CDO super senior positions, negative basis
trades and monoline exposures - held within Non-Core division.
Structured Investment Vehicle (SIV) - a limited-purpose operating
company that undertakes arbitrage activities by purchasing highly rated
medium and long-term, fixed-income assets and funding itself with short-
term, highly rated commercial paper and medium-term notes.
Structured notes - securities that pay a return linked to the value or level
of a specified asset or index. Structured notes can be linked to equities,
interest rates, funds, commodities and foreign currency.
Subordinated liabilities - liabilities which, in the event of insolvency or
liquidation of the issuer, are subordinated to the claims of depositors and
other creditors of the issuer.
Sub-prime - mortgage loans to customers with one or more high risk
characteristics, such as: unreliable or poor payment histories; high loan-
to-value ratios; high debt-to-income ratio; the loan is not secured on the
borrower's primary residence; or a history of delinquencies or late
payments on the loan.
Super senior CDO - the most senior class of instrument issued by a CDO
vehicle. They benefit from the subordination of all other instruments,
including AAA rated securities, issued by the CDO vehicle.
Tier 1 capital - core Tier 1 capital plus other Tier 1 securities in issue, less
material holdings in financial companies.
Tier 1 capital ratio - Tier 1 capital as a percentage of risk-weighted
assets.
Tier 2 capital - qualifying subordinated debt and other Tier 2 securities in
issue, eligible collective impairment allowances, unrealised available-for-
sale equity gains and revaluation reserves less certain regulatory
deductions.
Unaudited - financial information that has not been subjected to the audit
procedures undertaken by the Group's auditors to enable them to
express an opinion on the Group's financial statements.
US Federal Agencies - see Federal Agencies.
US Government National Mortgage Association - see Ginnie Mae.
Value-at-risk (VaR) - a technique that produces estimates of the potential
loss in the market value of a portfolio over a specified time period at a
given confidence level.
Wholesale funding - wholesale funding comprises Deposits by banks,
Debt securities in issue and Subordinated liabilities.
Wrapped security - a debt security where the holder benefits from credit
protection provided by a third party, typically a financial guarantor or
monoline insurer.
Write-down - a reduction in the carrying value of an asset to record a
decline in its fair value or value in use.
Wrong-way risk - the risk of loss when the risk factors driving the
exposure to a counterparty or customer are positively correlated with the
creditworthiness of that counterparty i.e. the size of the exposure
increases at the same time as the risk of the counterparty or customer
being unable to meet that obligation, increases.