A process by which banks adjust the delinquency status of loans based on subsequent good performance, even though not all arrears under the original repayment schedule have been paid off.
Recovery and Resolution Directive
A firm’s recovery plan that sets out credible options to recover financial strength and viability should the firm come under severe stress from a range of scenarios, including both idiosyncratic and market-wide stress.
The use of pledged assets, such as collateral held against client lending, for a firm’s own purposes. This allows an investment bank to use collateral posted by its clients as collateral for its own activities.
Relevant and Available
A principle of the (Basel II) IRB framework which requires banks to seek out and take into account as much information as possible in order to accurately assess the risk of borrowers and transactions.
Repurchase agreement. An agreement whereby one party sells the other a security at a specified price with a commitment to buy the security back at a later date for another specified price. Most 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.
Those resources that a financial institution holds on its balance sheet above the level necessary to carry on its current operations. These reserves are held against uncertainty and also to take advantage of future opportunities.
Property is used for domestic occupation rather than commercial purposes. This would represent housing stock purchased for self occupancy or for residential letting.
The procedures and measures taken by the authorities to resolve the situation of an unviable bank i.e. a bank failing or likely to fail to satisfy threshold conditions.
A pack of information and analyses provided by a bank, which would facilitate resolution in the event that the bank fails, or is likely to fail.
A plan prepared by the authorities (Bank of England and PRA) for putting a firm that fails to meet threshold conditions into resolution in an orderly manner and with minimal impact on the financial system.
Loans and other commercial lending made to individuals or small businesses (rather than large companies or institutions).
Reverse Repurchase Agreement. The purchase of securities with the agreement to sell them back at a specific future date. For the seller of the security (who agrees to repurchase it in the future) it is a repo; for the buyer of the security (who agrees to sell it back in the future) it is a reverse repo.
Reverse Stress Testing
In contrast to other stress testing, reverse stress testing starts from assuming an adverse outcome, such as failure of the business, and attempts to determine the possible chain of events, and their degree of severity, under which this may occur.
A bank in which retail and commercial operations are separated, or ring-fenced, from its wholesale or investment banking activities.
The nature and extent of the significant risks that a firm it is prepared to accept in meeting its business objectives and regulatory obligations.
Risk Appetite Statement
A document that articulates the Bank's risk appetite.
Risk Asset Ratio (RAR)
Synonym for Capital Ratio.
Risk Assessment Process
The process under which an institution identifies the risks to which it is exposed either through its commercial activities, or through its own internal business processes.
The commercial operations and management of banks which create the possibility of potential financial loss.
The processes by which an institution manages its various sources of risk. These include internal controls and procedures, tools to reduce or mitigate risks and the policies a bank adopts to reduce potential risk exposures.
Risk Management Framework
The set of components that support and sustain risk management throughout the organisation.
Techniques and financial instruments designed to reduce a bank's exposure to risks. These may include insurance against operational risks and the use of internal limits, credit risk mitigation, netting agreements, hedging instruments etc.
A parameter reflecting the relative risk of a type of lending, counterparty (credit risk) or business activity (operational risk). These weightings are used in the calculation of regulatory capital requirements.
A risk-weighted asset (RWA) reflects the amount of a bank’s asset (e.g. a lending exposure), adjusted for risk (e.g. risk of credit default). A risk-weighting reflects the degree of risk and is multiplied by the value of the asset to determine its RWA value.
Required Stable Funding. See Net Stable Funding Ratio.
Reduction in a bank’s deposit base, or loan portfolio, as customer deposits are withdrawn, or customer loans are paid off, and not replaced at the same rate.