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Mark-to-Market
The valuation of an asset or liability based on its current market price, or that of similar assets and liabilities, or based on another objectively based ‘fair value’ assessment.
Market discipline
Pillar 3 of the new Accord. Encouragement made to financial institutions to improve effective risk management by allowing for comparison, through disclosure requirements, of the performance across the sectors (credit institutions and investment firms).
Market disclosure
Market risk
The risk of losses of on and off balance sheet positions arising from changes in market price. For instance if any individual buys shares at the current market price, the risk that they may fall in price.
Market-wide stress
Adverse financial market conditions, including disruption in financial markets, that would generally affect firms operating within the firm’s own market sector.
Material drivers
Maturity
The remaining time in years that a borrower is permitted to take to fully discharge their contractual obligation (principal, interest and fees) under the terms of a loan agreement.
Minimum capital requirements
The minimum amount of regulatory capital that a financial institution must hold to meet the Pillar 1 requirements for credit, market and operational risk.
Minimum standards
The minimum requirements that a regime must meet in order to meet the requirements of the legislation.
Model outliers
Statistical term to describe observation points that deviate from trend line, which are excluded from model build.
Mortgage backed bonds
A form of capital raising instrument issued by a financial institution that is secured on a given portfolio of mortgages on its balance sheet. Should the bank be wound up the bondholders would have claim on these assets in preference to other creditors.
MRCR
Market Risk Capital Requirement. The capital charge (or capital resources requirement) for market risk.
MTM
N2
1st December 2001. The date that the Financial Services and Markets Act 2000 (FSMA 2000) came into force that conferred the responsibility for supervising all financial business in the UK on the Financial Services Authority (FSA).
National discretion
An area of the requirements where national supervisors may choose alternative treatments.
Net Stable Funding Ratio
The ratio of the amount of Available Stable Funding to the required amount of stable funding, which must be greater than 100% to meet the minimum Basel III regulatory standard.
Netting of transactions
The ability of a bank to reduce its credit risk exposures, by offsetting the value of any deposits against loans to the same counterparty. For instance if an individual has deposits of £100 and borrowings of £300, then a bank could calculate its capital requirement by assuming the individual had only borrowed £200 (£300-£100).
No compulsion, no prohibition
FSA's implementation principle that it is for senior management in banks to decide which approaches to credit and operational risk they wish to adopt.
NSFR
Obligor
Borrower or borrowing group to whom a loan is extended.
OBS
OECD
Organisation for Economic Co-operation and Development group of 30 member countries. Capital adequacy requirements distinguish between exposures in OECD and non-OECD sovereigns and banks.
Off-balance sheet
Assets/liabilities that have been committed but not yet transacted. In terms of credit risk, off balance sheet items are obligations to make loans or other payments in the future.
OIS
Overnight Index Swap. An interest rate swap that exchanges a fixed rate of interest for floating rate payments based on a notional principal. The floating rate is a specified published daily overnight rate for the OIS currency.
On-balance sheet
Items that appear within the bank's balance sheet e.g. loans which have actually been made (see off balance sheet, above).
One-way CSA
A Credit Support Annex agreement under which only one of the counterparties is required to post collateral.
Operational risk
The risks associated with the internal failure of systems or people, or the risk arising from external events. These are risk events such as internal fraud, the failure of internal IT infrastructure (e.g. for payment and settlement) or external factors such as terrorism, which have the potential to impact on the institutions ability to carry out its business.
Operational Risk Requirement
The Capital Charge for Operational Risk i.e. the amount of regulatory capital that must be assigned for operational risk.
ORR
OTC
Over-the-counter (off-exchange trading).
OTD
The Originate-to-distribute model of lending, where the originator of a loan sells it to various third parties.
Over-the-counter (trading)
The trading of financial instruments (such as stocks, bonds, commodities or derivatives) directly between two parties, rather than via a trading exchange such as a futures exchange or stock exchange.
Own Funds Directive
Directive (1989/229/EC). The Directive introduced harmonised rules for the definition of tier 1 and tier 2 capital within the EU, implementing the requirements laid out in the 1988 Basel Accord.
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