Prudential measures pertaining to the wider financial system and economy.
The valuation of an asset or liability based on its current market price, or that of similar assets or liabilities.
The risk of losses of on- and off-balance sheet positions arising from changes in market price.
Adverse financial market conditions, including disruption in financial markets, generally affecting firms operating within the firm’s own market sector.
The exercise of caution or prudential measures pertaining to an individual bank or institution.
Minimum Capital Requirements
The minimum amount of regulatory capital that a financial institution must hold to meet its Pillar 1 requirements for credit, market and operational risk and to meet Pillar 2A supervisory requirements concerning other particular risks that it faces, including credit concentration risk.
In the context of liquidity, the difference between cash inflows (from maturing loans) and outflows (from maturing deposits) at a particular point in time. A negative mismatch is where outflows exceed inflows.
A financial market for short-term borrowing, lending, buying and selling assets over-the-counter.
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.
Market Risk Capital Requirement. The capital charge (or capital resources requirement) for market risk.
Minimum Requirement for regulatory capital and Eligible Liabilities. MREL is a regulatory requirement for banks to maintain sufficient regulatory capital and eligible liabilities which can credibly bear losses in the event that a bank fails.
Net Interest Income
The net income resulting from the spread between interest paid out on deposits and interest earned on assets (lending).
Net Present Value
The difference between the present value of cash inflows and the present value of cash outflows.
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.
An agreement to net gains and losses on transactions so that a single net amount is owed by one party to the other.
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.
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.
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.
Overall Liquidity Adequacy Rule, which requires that adequate liquidity resources are maintained at all times to meet liabilities as they fall due, under both normal and stressed conditions.
Items that appear within the bank's balance sheet e.g. loans which have actually been made (see off balance sheet, above).
A Credit Support Annex agreement under which only one of the counterparties is required to post collateral.
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
A derivative contract that offers the right to buy (call option) an asset for a pre-agreed (strike) price or to sell at an agreed price (put option).
Over-the-counter (off-exchange trading).
The Originate-to-Distribute model of lending, where the originator of a loan sells it to various third parties.