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Tier 1 Capital
Also called Core capital. It is the equity (share capital) and retained earnings of a financial institution.
Tier 2 Capital
Also called Supplementary capital. These are the reserves, hybrid debt/equity capital and subordinated debt of a financial institution.
Tier 3 Capital
Also called Ancillary capital. This is short-term subordinated debt used to support market risk from trading activities only.
Trading book
A trading book consists of positions in financial instruments and commodities held either with intent to trade, or in order to hedge other elements of the trading book. To be eligible for trading book capital treatment, financial instruments must either be free of any restrictive covenants on their tradability, or able to be hedged completely. In addition, positions should be frequently and accurately valued, and a portfolio should be actively managed.
Transposition into national law
The process under which an EU directive is converted into a Member States' law. This may be through primary legislation (an Act of Parliament) or through secondary legislation (statutory instruments) or under delegated powers such as the Financial Services and Markets Act (2000), which gives the power for the FSA to implement proposals through their rulebook.
Tripartite Authorities
The Tripartite Authorities in the UK are HM Treasury, the FSA and the Bank of England.
TSA
TtC
Through the Cycle - an internal ratings system that aims to leave a borrower's rating unchanged over the course of the credit business cycle, but that expects default levels for each grade to vary with the cycle.
UCITS
Undertaking for Collective Investments in Transferable Securities. UCITS are collective funds which can be sold across national borders within the EU in accordance with the UCITS Directive.
UK Integrated Group (UKIG)
An integrated group based in the UK. Exposures between members of the same UKIG are exempt from large exposure limits, provided they meet certain conditions.
Unsettled transactions
Where a bank has committed to the sale of equity or other security, but the payment and delivery has not yet been settled.
Use test
The requirement for a bank to use an advanced approach more widely in its business and not merely for calculation of regulatory capital.
Validation
The process by which a bank ensures that an IRB or similar system is producing accurate and consistent results in line with its underlying objectives and regulatory requirements.
Value at Risk model
A statistical technique designed to give an estimate of the maximum loss that could be made for a given factor of confidence over a set time horizon under normal market conditions.
VaR
Venture Capital
Fund made available for start up firms and or small businesses with exceptional growth potential.
Volatility of provisions post default
Provisions on defaulted loans are normally raised on assumptions of mean expected losses. However the potential for eventual losses, and therefore provisions, to vary from this central expectation is a source of risk on defaulted loans.
Waiver
A direction waiving or modifying a rule set by the FSA.
Wider Integrated Group (WIG)
An integrated group based outside of the UK, which may qualify for preferential treatment with regard to exposure limits, subject to certain rules and conditions.
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