RBS 2013 Annual Report Download - page 554
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Glossary of terms
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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 a concession is made on
the contractual terms of a loan in response to a customer’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.
Fully loaded Basel III basis - capital ratios based on the rules that will
apply at the end of the Basel III transition period.
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.
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
the Federal Home Loan Mortgage Corporation and the Federal National
Mortgage Association.
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.
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.
Impairment losses - (a) for impaired financial assets measured at
amortised cost, impairment losses - the difference between carrying
value and the present value of estimated future cash flows discounted at
the asset's original effective interest rate - are recognised in profit or loss
and the carrying amount of the financial asset reduced by establishing a
provision (allowance) (b) for impaired available-for-sale financial assets,
the cumulative loss that had been recognised directly in equity is
removed from equity and recognised in profit or loss as an impairment
loss.
Individual liquidity guidance (ILG) - guidance from the PRA on a firm's
required quantity of liquidity resources and funding profile.
Individually assessed loan impairment provisions - impairment loss
provisions for individually significant impaired loans assessed on a case-
by-case basis, taking into account the financial condition of the
counterparty and any guarantor and the realisable value of any collateral
held.
Interest rate swap - a contract under which two counterparties agree to
exchange periodic interest payments on a predetermined monetary
principal, the notional amount.
Interest spread - the difference between the gross yield and the interest
rate paid on average interest-bearing liabilities.
Internal Capital Adequacy Assessment Process (ICAAP) - the Group’s
own assessment, as part of Basel II requirements, of its risks, how it
intends to mitigate those risks and how much current and future capital is
necessary having considered other mitigating factors.
Internal funding of trading business - the internal funding of the trading
book comprises net banking book financial liabilities that fund financial
assets in the Group’s trading portfolios. Interest payable on these
financial liabilities is charged to the trading book.
International Accounting Standards Board (IASB) - the independent
standard-setting body of the IFRS Foundation. Its members are
responsible for the development and publication of International Financial
Reporting Standards (IFRSs) and for approving Interpretations of IFRS
as developed by the IFRS Interpretations Committee.
International Swaps and Derivatives Association (ISDA) master
agreement - a standardised contract developed by ISDA for bilateral
derivatives transactions. The contract grants legal rights of set-off for
derivative transactions with the same counterparty.
Investment grade - generally represents a risk profile similar to a rating of
BBB-/Baa3 or better, as defined by independent rating agencies.
Key management - directors of RBSG and members of the Group
Management Committee.
Latent loss provisions - loan impairment provisions held against
impairments in the performing loan portfolio that have been incurred as a
result of events occurring before the balance sheet date but which have
not been identified as impaired at the balance sheet date.