Exposure at default. The expected gross exposure of a facility upon default of the counterparty.
External credit assessment institution (rating agency) that is recognised by the regulator for risk weighting purposes under the Basel II Standardised Approach to Credit Risk and for securitisation-based approaches.
The underlying services and products that a bank or investment firm offers to the economy.
The underlying value of a firm’s assets, liabilities and off-balance sheet instruments.
Economic Value of Equity
Calculated by taking the present value of all asset cash flows and subtracting the present value of all liability cash flows.
An asset pledged (either explicitly or implicitly) to secure, collateralise or credit enhance any transaction.
European Banking Authority
The European Banking Authority (EBA) provides advice to the European Commission and other EU institutions on banking regulation and policy issues. The EBA replaced the Committee of European Banking Supervisors (CEBS) in January 2011. It is responsible for promoting the convergence of supervisory practice throughout the European Union. The EBA also fosters common implementation and consistent application of Community legislation.
The European Commission embodies and upholds the general interests of the European Union. It is represented by 20 appointed Commissioners (including its President) and has the sole right of initiative on the proposal of legislation.
The European Council is formed of representatives of Member States governments (usually Ministers) who meet to discuss issues of importance and agree legislative proposals. For Financial Services the main Council is ECOFIN (Economic and Financial Affairs committee) at which the Chancellor represents the UK.
Derivative contracts that are traded via a market exchange where contracts are defined by the exchange and the exchange acts as an intermediary, taking margin collateral from both sides of a trade to act as a guarantee.
Expected Shortfall measures the riskiness of a position by considering both the size and the likelihood of losses above a certain confidence level (degree of certainty).
Export Credit Agency (ECA)
An institution responsible for financing arrangement allowing a foreign buyer of exported goods and/or services to defer payment over a period of time, often providing an insurance or guarantee arrangement.
Exposure at Default (EAD)
The expected exposure of a bank for a given loan upon default of the counterparty.
Financial Conduct Authority
The regulatory authority focussing on consumer protection and markets. The FCA has, inter alia, taken over responsibility from the FSA for supervising conduct of business as well as prudential regulation of those firms not shared with the Prudential Regulation Authority (PRA).
A financial group with cross-sector activities. For instance a financial conglomerate may contain a combination of credit institutions, investment firms and insurance operations.
Financial Policy Committee
The committee of the Bank of England that is responsible for macroprudential oversight of the financial services system as a whole.
Financial Services Act 2012
The Act of Parliament that creates the new regulatory framework consisting of the Financial Policy Committee, the Prudential Regulation Authority and the Financial Conduct Authority, replacing the Financial Services Authority from 1 April 2013.
Financial Services Compensation Scheme
The deposit guarantee scheme for customers of UK authorised financial services firms, which compensates customers if a firm has stopped trading or does not have enough assets to pay claims made against it.
Financial Stability Board
International body established in 2009 to develop and promote financial regulatory policies, coordinating the work of national authorities and other international standards bodies.
Commonly used in regulatory terminology to mean a bank (credit institution) or an investment firm.
Firm Systematic Framework
FCA’s regulatory approach based on three ‘pillars’: preventative work through continuous assessment of firms; event-driven work to be responsive to emerging problems; and sector-driven work to address cross-firm and product issues where consumers are at risk.
Minimum. On a sliding scale, the floor would be the minimum percentage or amount that would apply.
Fixed Overhead Requirement. Capital requirement for a regulated UK investment firm that is equal to 25% of the firms ‘relevant’ fixed expenditure i.e. total expenditure in the firm’s accounts but excluding certain operating expenses such as staff bonuses, interest payments and transaction commissions and fees.
Foundation Internal Ratings Based Approach
The intermediate of the three Basel II approaches to credit risk. Banks are required to use internal models to calculate their regulatory capital requirements. The supervisory authority will supply some of the parameters for these models (LGDs and EADs).
In the context of regulation, the ability of a bank to be able to maintain its core business franchise i.e. carry on with its normal business activities.
Fundamental Review of the Trading Book
Funds Transfer Pricing
Funds transfer pricing (FTP) is an internal measurement framework designed to assess the financial impact of a bank's sources and uses of funds. FTP measures the ‘true’ cost of funding an earning asset and credit for an interest-bearing liability. Transfer pricing rates vary according to repricing term and other attributes, with the aim to represent the alternative ‘opportunity’ rate for the bank's sources or uses of funds.
FX Mismatch Risk
The risk that under stress conditions, a firm may not be able to access FX markets as normal in order to address currency mismatches.
An agreement to buy (sell) an amount of currency at an agreed rate and to resell (repurchase) the same amount of currency for a later date to (from) the same counterparty, also at an agreed rate. Not to be confused with a cross currency swap.
Global Systemically Important Bank.
G-SII (Capital) Buffer
Capital buffer set for globally systemic banks to reduce their probability of failure or distress commensurately with the greater cost their failure or distress would have for the global financial system and economy.
The Group of Central Bank Governors and Heads of Supervision, the Basel Committee's oversight body.
The difference between the total value of a business and the value of the net assets on its balance sheet. The value represents the ability of the business to generate profits and cash in the future.
The reduction in the value of an asset in determining its market value for meeting regulatory requirements, its worth as collateral or its disposal value under adverse sale conditions.
High Quality Liquid Assets
In the context of the Liquidity Coverage Ratio, these are assets that can be converted into cash at little or no loss of value to meet liquidity needs for a 30-day prescribed liquidity stress scenario.
High Volatility Commercial Real Estate (HVCRE)
Significant concentrations in certain property (normally commercial) acquisitions, development and construction loans that lack "substantial equity" or are not "significantly pre-leased". For instance lending where the performance of the lending will very much depend on the success of the underlying investment.
Extent to which individual items in a group display the same risk characteristics e.g. assets in a pool.
The supervisor for the country in which a foreign bank has a banking office or subsidiary.
HQLA Monetisation Risk
Hurdle Rate (for stress testing)
The minimum level of capital that must be maintained under all stress conditions, including a severe but plausible stress scenario. For all but SIFI financial institutions, it is the total sum of Pillar 1 and Pillar 2A capital requirements..
The pledging of securities or other assets as collateral to secure a loan or credit facility. See also rehypothecation.