General Prudential Measures
Additional capital buffers: Mandatory capital that some systemically important banks are required to hold in addition to other minimum capital requirements. These could be macroprudential capital buffers or applied to specific institutions.
Basel III: Third Basel Accord.
BCBS: The Basel Committee on Banking Supervision which sets global prudential standards for internationally active banks (the Basel framework).
Capital ratios: The percentage of a bank’s capital to its risk weighted assets.
CCR: Counterparty credit risk is the risk to a firm that a counterparty to a transaction might not perform its contractual obligations before the transaction's cash flows are settled.
Common Equity Tier 1: The highest quality of regulatory capital as it absorbs losses immediately when they occur. It is mainly made up of common shares issued by a credit institution, the bank, retained earnings and/or other income and disclosed reserves.
Concentration risk: The actual or potential risks arising from the exposure to a single client or group of clients.
Credit institutions: A firm whose business is to take deposits or other repayable funds from the public and to grant credits for its own account. Credit institutions include banks and building societies.
Credit rating: A grade typically awarded by credit rating agency to a financial instrument or entity indicating the probability of default and creditworthiness.
Credit risk: The risk of loss that results from a borrower failing to repay a loan or meet its contractual obligations.
CRD IV: Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms (see CRD IV ).
CRD V: Directive (EU) 2019/878 of the European Parliament and of the Council of 20 May 2019 amending Directive 2013/36/EU as regards exempted entities, financial holding companies, mixed financial holding companies, remuneration, supervisory measures and powers and capital conservation measures (see CRD V ).
CRR Basel Standard: A standard published by the Basel Committee on Banking Supervision (BCBS) that is relevant for the purposes of this Act. The term is defined in the Act itself at Section 4.
CRR or Capital Requirements Regulation: Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms. The ‘EU CRR’ refers to the EU version of the Regulation. The ‘CRR’ is the Regulation as it has effect in the UK after IP completion day (see CRR and EU CRR ).
CRR II: Regulation (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) No 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements for own funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures, reporting and disclosure requirements. The ‘EU CRR II’ refers to the EU version of the Regulation. The ‘CRR’ is the Regulation as it has effect in the UK after IP completion day (see EU CRR II and CRR II ).
CVA risk: Credit valuation adjustment risk is the risk of a change in the value of a bank’s exposure to its counterparties in derivatives transactions.
EU IFD: Directive (EU) 2019/2034 of the European Parliament and of the Council of 27 November 2019 on the prudential supervision of investment firms (see EU IFD ).
FCA investment firm: An investment firm that- (a) has a Part 4A permission to carry on one or more regulated activities; (b) is not designated by the PRA; and (c) has its registered office or, if it has no registered office, its head office in the UK.
Financial obligations: Any outstanding debts or regular payments that must be made.
G-SIIs: Global systemically important institutions.
High-quality liquid assets: Assets with a high potential to be converted easily and quickly into cash.
IFPR: Investment Firms Prudential Regime.
IFR: Regulation (EU) 2019/2033 of the European Parliament and of the Council of 27 November 2019 on the prudential requirements of investment firms. The ‘EU IFR’ refers to the EU version of the Regulation (see EU IFR .
Investment firms: An investment firm provides a range of services which give investors access to securities and derivatives markets.
LCR: Liquidity coverage ratio refers to the proportion of highly liquid assets held by financial institutions, to ensure their ongoing ability to meet short-term obligations.
Leverage: The use of borrowed money (debt) to finance the purchase of assets with the expectation that the income or capital gain from the new asset will exceed the cost of borrowing.
Leverage ratio: The leverage ratio is the proportion of debts that a bank has compared to its equity/capital (more technically, the ratio of tier 1 capital to total non-weighted assets and off-balance sheet exposures).
Liquidity requirements: Liquidity is a measure of the cash and other assets banks have available to quickly pay bills and meet short-term business and financial obligations. The BCBS has introduced two standards setting out requirements for banks in the form of Liquidity Coverage Ratio and a Net Stable Funding Ratio.
Macroprudential capital buffers: Additional capital that banks are required to hold in addition to other minimum capital requirements, which reflect vulnerabilities and risks to the financial system.
Market risk: The risk of loss resulting from factors that affect the overall performance of the financial markets in which a bank may be involved. Common sources of market risk stem from buying and selling commodities, equity (i.e. shares or common stock) or foreign exchange as well as changes in the interest rate or credit spread.
Non-performing exposures: Also referred to as "bad debt" and are generally loans where more than 90 days have passed without the borrower paying the agreed instalments and interest.
NSFR: Net stable funding ratio requires banks to hold enough stable funding to cover the duration of their long-term assets. Where stable funding is the portion of capital and liabilities expected to be reliable over a specific time horizon.
Off-balance sheet exposures: Activities that are effectively assets or liabilities of a company but do not appear on the company's balance sheet
Operational risk: The risk of loss resulting from inadequate or failed processes, people and systems or from external events.
Prudential regulation: Financial regulation that requires firms to control risks and maintain sufficient capital to operate through periods of economic stress.
Parent undertakings: A parent business entity to a group of businesses, sometimes called a holding company.
RWAs: Risk-weighted assets. A bank’s asset or off-balance sheet exposure, weighted according to risk.
SACR: Standardised Approach to Credit Risk.
"Sound Principles": Principles for Sound Liquidity Risk Management and Supervision.
Systemic risks: The possibility that an event at the company level could trigger severe instability or collapse an entire industry or economy.
Technical standards: Regulatory technical standards (RTS) or binding technical standards (BTS), which are delegated acts, prepared by a European Supervisory Authority. These specify particular aspects of an EU legislative text with the aim of ensuring consistency and harmonisation across the EU in specific areas.