RBS 2013 Annual Report Download - page 555
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Glossary of terms
553
Level 1 - level 1 fair value measurements are derived from quoted prices
(unadjusted) in active markets for identical assets or liabilities that the
entity can access at the measurement date.
Level 2 - level 2 fair value measurements use inputs, other than quoted
prices included within Level 1, that are observable for the asset or
liability, either directly or indirectly.
Level 3 - level 3 fair value measurements use one or more unobservable
inputs for the asset or liability.
Leverage ratio - a measure prescribed under Basel III. It is the ratio of tier
1 capital to total exposures. Total exposures include on-balance sheet
items, off-balance sheet items and derivatives, and generally follow the
accounting measure of exposure.
Leveraged finance - funding (leveraged finance) provided to a business
resulting in an overall level of debt in relation to cash flow that exceeds
that which would be considered usual for the business or for the industry
in which it operates. Leveraged finance is commonly employed to
achieve a specific, often temporary, objective: to make an acquisition, to
effect a buy-out or to repurchase shares.
Liquidity and funding risk - the risk that the Group is unable to meet its
financial liabilities when they fall due.
Liquidity coverage ratio (LCR) - the ratio of the stock of high quality liquid
assets to expected net cash outflows over the following 30 days. High
quality liquid assets should be unencumbered, liquid in markets during a
time of stress and, ideally, central bank eligible.
Loan:deposit ratio - the ratio of loans and advances to customers net of
provision for impairment losses and excluding reverse repurchase
agreements to customer deposits excluding repurchase agreements.
Loan impairment provisions - loan impairment provisions are established
to recognise incurred impairment losses on a portfolio of loans classified
as loans and receivables and carried at amortised cost. It has three
components: individually assessed loan impairment provisions,
collectively assessed loan impairment provisions and latent loss
provisions.
Loan-to-value ratio - the amount of a secured loan as a percentage of the
appraised value of the security e.g. the outstanding amount of a
mortgage loan as a percentage of the property's value.
London Interbank Offered Rate (LIBOR) - the benchmark interest rate at
which banks can borrow funds from other banks in the London interbank
market.
Loss given default (LGD) - an estimate of the amount that will not be
recovered by the Group in the event of default, plus the cost of debt
collection activities and the delay in cash recovery.
Market risk - the risk of loss arising from fluctuations in interest rates,
credit spreads, foreign currency rates, equity prices, commodity prices
and other risk-related factors such as market volatilities that may lead to
a reduction in earnings, economic value or both.
Master netting agreement - an agreement between two counterparties
that have multiple derivative contracts with each other that provides for
the net settlement of all contracts through a single payment, in a single
currency, in the event of default on, or termination of, any one contract.
Medium term notes (MTNs) - debt securities usually with a maturity of five
to ten years, but the term may be less than one year or as long as 50
years. They can be issued on a fixed or floating coupon basis or with an
exotic coupon; with a fixed maturity date (non-callable) or with embedded
call or put options or early repayment triggers. MTNs are generally issued
as senior unsecured debt.
Monoline insurers (monolines) - entities that specialise in providing credit
protection against the notional and interest cash flows due to the holders
of debt instruments in the event of default. This protection is typically in
the form of derivatives such as credit default swaps.
Mortgage-backed securities - asset-backed securities for which the
underlying asset portfolios are loans secured on property. See
Residential mortgage backed securities and Commercial mortgage
backed securities.
Mortgage servicing rights - the rights of a mortgage servicer to collect
mortgage payments and forward them, after deducting a fee, to the
mortgage lender.
Negative equity mortgages - mortgages where the value of the property
mortgaged is less than the outstanding balance on the loan.
Net interest income - the difference between interest receivable on
financial assets classified as loans and receivables or available-for-sale
and interest payable on financial liabilities carried at amortised cost.
Net interest margin - net interest income as a percentage of average
interest-earning assets.
Net stable funding ratio (NSFR) - the ratio of available stable funding to
required stable funding over a one year time horizon, assuming a
stressed scenario. Available stable funding includes items such as equity
capital, preferred stock with a maturity of over one year and liabilities with
an assessed maturity of over one year.
Non-performing loans - loans classified as Risk elements in lending and
Potential problem loans. They have a 100% probability of default and
have been assigned an AQ10 internal credit grade.
Operational risk - the risk of loss resulting from inadequate or failed
processes, people, systems or from external events.