RBS 2013 Annual Report Download - page 556
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Glossary of terms
554
Option - an option is a contract that gives the holder the right but not the
obligation to buy (or sell) a specified amount of the underlying physical or
financial commodity, at a specific price, at an agreed date or over an
agreed period. Options can be exchange-traded or traded over-the-
counter.
Over-the-counter (OTC) derivatives - derivatives with tailored terms and
conditions negotiated bilaterally, in contrast to exchange traded
derivatives that have standardised terms and conditions.
Own credit adjustment (OCA) - the effect of the Group’s own credit
standing on the fair value of financial liabilities.
Past due - a financial asset such as a loan is past due when the
counterparty has failed to make a payment when contractually due.
Pillar 1 - the part of Basel II that sets out the process by which regulatory
capital requirements should be calculated for credit, market and
operational risk.
Pillar 2 - the part of Basel II that sets out the process by which a bank
should review its overall capital adequacy and the processes under which
the supervisors evaluate how well financial institutions are assessing their
risks and take appropriate actions in response to the assessments.
Pillar 3 - the part of Basel II that sets out the information banks must
disclose about their risks, the amount of capital required to absorb them,
and their approach to risk management. The aim is to strengthen market
discipline.
Position risk requirement - a capital requirement applied to a position
treated under BIPRU 7 (Market risk) as part of the calculation of the
market risk capital requirement.
Potential future exposure - is a measure of counterparty risk/credit risk. It
is calculated by evaluating existing trades done against the possible
market prices in future during the lifetime of the transactions.
Potential problem loans (PPL) - loans for which an impairment event has
taken place but no impairment loss is expected. This category is used for
advances which are not past due 90 days or revolving credit facilities
where identification as 90 days overdue is not feasible.
Private equity investments - equity investments in operating companies
not quoted on a public exchange. Capital for private equity investment is
raised from retail or institutional investors and used to fund investment
strategies such as leveraged buyouts, venture capital, growth capital,
distressed investments and mezzanine capital.
Probability of default (PD) - the likelihood that a customer will fail to make
full and timely repayment of credit obligations over a one year time
horizon.
Prudential Regulation Authority (PRA) - the statutory body responsible,
from 1 April 2013, for the prudential supervision of banks, building
societies, insurers and a small number of significant investment firms in
the UK. The PRA is a subsidiary of the Bank of England.
Regular way purchase or sale - a purchase or sale of a financial asset
under a contract whose terms require delivery of the asset within the time
frame established generally by regulation or convention in the
marketplace concerned.
Regulatory capital - the amount of capital that the Group holds,
determined in accordance with rules established by the PRA for the
consolidated Group and by local regulators for individual Group
companies.
Repurchase agreement (Repo) - see Sale and repurchase agreements.
Residential mortgage - a loan to purchase a residential property where
the property forms collateral for the loan. The borrower gives the lender a
lien against the property and the lender can foreclose on the property if
the borrower does not repay the loan per the agreed terms. Also known
as a home loan.
Residential mortgage backed securities (RMBS) - asset-backed
securities for which the underlying asset portfolios are residential
mortgages.
Retail loans - loans made to individuals rather than institutions. The loans
may be for car purchases, home purchases, medical care, home repair,
holidays and other consumer uses.
Return on equity - profit attributable to ordinary and B shareholders
divided by average shareholders’ equity as a percentage.
Reverse repurchase agreement (Reverse repo) - see Sale and
repurchase agreements.
Risk appetite - an expression of the maximum level of risk that the Group
is prepared to accept to deliver its business objectives.
Risk asset ratio (RAR) - total regulatory capital as a percentage of risk-
weighted assets.
Risk elements in lending (REIL) - impaired loans and accruing loans
which are contractually overdue 90 days or more as to principal or
interest.