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ICA
ICAAP
ICG
Idiosyncratic stress
A firm-specific stress scenario where the market and/or customers perceive that the particular firm is in difficulties, leading to a loss of confidence in the firm’s ability to continue business as usual.
ILAA
ILAS
ILG
ILSA
IMM
IMM Bank
A bank that has permission to use internal model methods to calculate regulatory capital for its counterparty credit risk (CCR) exposures.
Individual Capital Assessment
A firm's own assessment of its capital requirements resulting from its ICAAP (Internal Capital Adequacy Assessment Process).
Individual Capital Guidance
Guidance given by the FSA on the amount and quality of capital resources which the FSA considers that a firm needs to hold. Firms are expected to maintain financial resources at or above the level specified in the ICG at all times.
Individual Liquidity Adequacy Assessment
A firm’s assessment the type and quality of liquidity resources it thinks it should hold against the sources of liquidity risk.
Individual Liquidity Adequacy Standards
The rules under which the adequacy of a firm’s liquidity resources must be assessed, both by the firm and by the FSA.
Individual Liquidity Guidance
Guidance given by the FSA on (i) the amount and makeup of liquidity resources that a firm needs to hold and (ii) what the FSA considers to be an appropriate funding profile for the firm.
Individual Liquidity Systems Assessment
A firm’s assessment of its compliance with ILAS systems and controls requirements.
Integrated Group (IG)
Financial firms that are parents or subsidiaries within the same group and have one or more exposures to each other.
Inter-bank lending
Lending by one bank to another.
Interest rate risk
Interest rate risk is the exposure of a bank's financial condition to adverse movements in interest rates. Accepting this risk is a normal part of banking and can be an important source of profitability and shareholder value.
Interest Rate Swap
An agreement between two counterparties where one stream of future interest payments is exchanged for another based on a notional principal amount. Interest rate swaps often exchange a fixed payment for a floating payment that is linked to an interest rate (e.g. LIBOR). Most swaps are traded over-the-counter.
Interim ICG
Individual Capital Guidance (ICG) assigned to a firm until the FSA undertakes a review (SREP) of the firm's ICAAP.
Internal Capital Adequacy Assessment Process
Process under which a bank assesses whether it has adequate capital to meet its requirements.
Internal controls
These include audits or other appropriate oversight mechanisms to ensure the integrity of the information used by senior officials in overseeing compliance with policies and limits.
Internal estimates
Internal estimates are those parameters for use in models that have been generated by using the banks own loss experiences. These estimates are normally subject to some qualitative criteria.
Internal limits
Self-imposed parameters designed to set boundaries for the levels of risks or exposure permitted. For instance a bank may limit the value of the amount of exposure it is allowed to have to some business lines.
Internal Model Method
Under IMM banks that meet qualifying supervisory standards are permitted to use their 'own estimates' developed through internal models for calculating counterparty credit risk exposure. IMM is applicable to both OTC derivatives and SFTs.
Internal models or processes
The financial institution's process for generating estimates of risk components for use in the calculation of regulatory or economic capital requirements. These models are usually computer simulations that use past data or equivalent cohorts as a guide to estimating the characteristics of a type of risk. For instance past data on mortgage defaults may be used to generate the probability of default of a new mortgage borrower.
Internal Rating Based Approach
Approaches to credit risk under which a bank may use internal estimates to generate risk components for use in their credit risk regulatory capital requirements. There are two approaches: Foundation (FIRB) and Advanced (AIRB).
Internal risk management
A financial institution's internal process/strategy for handling the risk inherent in their operations. This will also include how management are involved in the monitoring of these risks and what systems the organisation has to reduce the probability or severity of risk events.
Investment firm
A firm responsible for dealing, arranging and managing qualifying investment items as defined within the scope of the Investment Services Directive.
Investment Services Directive (ISD)
Council Directive (1993/22/EEC). The Directive sets the legislative framework for investment firms and securities markets in the EU. The Directive is currently under revision.
IRB
ISDA
International Swaps and Derivatives Association.
LCP
Liquidity contingency plan.
LCR
Lending entity
The vehicle through which funds are made available, important for solo or consolidated regulatory reporting.
Leverage Ratio
Commonly used to mean the ratio of assets to the firm’s capital base. Under the Basel III definition, the bank’s capital is restricted to Tier 1 Capital; the 'exposure measure' goes beyond on-balance sheet assets to include securities funding transactions and derivative exposures together with off-balance sheet items (reduced to 10% where unconditionally cancellable).
LGD
LIBA
London Investment Banking Association.
LIBOR
London Interbank Offered Rate. A daily published rate based on the interest rates at which banks borrow unsecured funds from other banks in the London wholesale money market (interbank market).
Limited Activity Firm
A BIPRU investment firm that is authorised to deal on its own account but only to fulfil client orders.
Limited Licence Firm
A BIPRU investment firm that is not authorised to deal on its own account in financial instruments on a firm commitment basis.
Liquidity Coverage Ratio
The ratio of a bank’s stock of unencumbered, high quality liquid assets to net cumulative cash outflows over a 30 calendar day period. To meet the Basel III definition, the ratio must be greater than 100% for a combined firm-specific (idiosyncratic) and market-wide shock scenario. Net cash outflows must be calculated according to the scenario parameters set by the supervisor.
Liquidity Metric Monitor
Liquidty monitoring tool provided by the FSA, for banks to monitor their ILG as well as a range of other liquidity metrics.
LMM
Loan to Value
The ratio (percentage) of the value of a loan to the value of the security taken against it; usually used in relation to mortgages.
Long-term Repo
Many repos are overnight transactions, with the sale taking place one day and being reversed the next day. Long-term repos, or term repos, can extend for a month or more.
Loss Given Default
Reflects the amount that would be lost should a counterparty default. (Usually expressed as a percentage).
LRM
Liquidity risk management.
LRP
Liquidity risk profile.
LTR
LTV
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