RBS 2013 Annual Report Download - page 557
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Glossary of terms
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Risk-weighted assets (RWAs) - assets adjusted for their associated risks
using weightings established in accordance with the Basel Capital Accord
as implemented by the PRA. Certain assets are not weighted but
deducted from capital.
Sale and repurchase agreements - in a sale and repurchase agreement
one party, the seller, sells a financial asset to another party, the buyer, at
the same time the seller agrees to reacquire and the buyer to resell the
asset at a later date. From the seller's perspective such agreements are
repurchase agreements (repos) and from the buyer's reverse repurchase
agreements (reverse repos).
Securitisation - a process by which assets or cash flows are transformed
into transferable securities. The underlying assets or cash flows are
transferred by the originator or an intermediary, typically an investment
bank, to a structured entity which issues securities to investors. Asset
securitisations involve issuing debt securities (asset-backed securities)
that are backed by the cash flows of income-generating assets (ranging
from credit card receivables to residential mortgage loans).
Settlement balances - payables and receivables that result from
purchases and sales of financial instruments recognised on trade date.
Asset settlement balances are amounts owed to the Group in respect of
sales and liability settlement balances are amounts owed by the Group in
respect of purchases.
Sovereign exposures - exposures to governments, ministries,
departments of governments and central banks.
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.
Standstill - is an agreement, usually for a specified period of time, not to
enforce the Bank’s rights as a result of a customer breaching the terms
and conditions of their facilities. This is a concession to the customer. A
standstill is most commonly used in a complex restructuring of a
company’s debts, where a group of creditors agree to delay enforcement
action to give the company time to gather information and formulate a
strategy with a view to establishing a formal restructuring.
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.
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).
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 entity (SE) - an entity that has been designed such that voting
or similar rights are not the dominant factor in deciding who controls the
entity, for example when any voting rights relate to administrative tasks
only and the relevant activities are directed by means of contractual
arrangements. SEs are usually established for a specific, limited purpose,
they do not carry out a business or trade and typically have no
employees. They take a variety of legal forms - trusts, partnerships and
companies - and fulfil many different functions.
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.
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.
Supervisory slotting approach - a method of calculating regulatory capital,
specifically for lending exposures in project finance and income
producing real estate, where the PD estimates do not meet the minimum
IRB standards. Under this approach, the bank classifies exposures from
1 to 5, where 1 is strong and 5 is default. Specific risk-weights are
assigned to each classification.
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.