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Scenario analysis
The analysis of possible alternative future events and the possible outcomes that may arise from them, often as a prelude to stress testing to determine the impact on a firm’s capital, liquidity and profitability.
Securities Financing Transaction
A transaction where securities are used to borrow cash, or vice versa, such as a repo or reverse repo transaction.
Securitisation
The pooling and repackaging of cash income producing financial assets into securities that can then be sold to investors.
Security
(i) A tradeable financial asset bought and sold in a financial market, (ii) a creditor relationship with governmental body or a corporation (bond), (iii) rights to ownership or (iv) a deposit pledged as a guarantee of the fulfilment of an undertaking or repayment of a loan, to be forfeited in case of default.
Section 166 Report
A report by a ‘Skilled Person’ appointed by the FCA, PRA or Bank of England to address a particular regulatory need identified by the supervisor relating to a regulated financial services business under Section 166 of the (amended) Financial Services and Markets Act 2000.
Sensitivity Analysis
Simulation analysis in which one or more key quantitative assumptions are changed to assess their effect on the final outcome. In comparison, scenario analysis considers whole scenarios that draw on numerous qualitative assumptions to determine the overall potential impact.
Solo Basis
The assessment and reporting of a firm's capital adequacy on an individual (unconsolidated) basis.
Solo Consolidated Basis
The assessment and reporting of capital adequacy for a firm and its subsidiaries on a consolidated basis, treating the group as a single entity. In order to solo consolidate, the bank must have significant management control of the subsidiary.
Sovereign exposures
Loans and other commercial activities that are made to a country's central government or its departments and agencies.
Standardised Approach for Counterparty Credit Risk
BCBS standard for measuring counterparty credit risk exposures.
Standardised Approach to Credit Risk (SA)
The most basic approach to credit risk under Basel II. This approach is similar to Basel I requirements, with regulatory capital requirements calculated by multiplying the value of a bank's exposure by an appropriate risk weight. The risk weights under the revised standardised approach are calculated by using external credit ratings that map onto defined credit steps.
Standardised Approach to Market Risk
The most basic approach available for the Basel II calculation of capital requirements for market risk. This approach is based on a more formulaic approach with supervisory determined parameters. These requirements are mostly unchanged from those adopted in the 1996 Market risk amendment to the Basel Accord (Basel I).
Standardised Approach to Operational Risk
(STA or TSA)
The intermediate of the three approaches to operational risk under Basel II. Capital requirements are calculated by taking a three-year average of gross income for eight defined business lines. Each of these eight income measures are then multiplied by a given risk weight (between 12 and 18 per cent) and then summed together to arrive at an overall capital requirement.
Stress testing
Determination of the resilience of a business model by considering a variety of severe yet plausible scenarios that give rise to unexpected demands on capital and/or liquidity and could result in financial distress. Stress testing is an important tool in the evaluation of the potential impact of a specific set of adverse conditions on the firm's business.
Subconsolidated requirements
Calculation of capital requirements for a consolidated sub-group within a larger group.
Subequivalence
Areas where a supervisory authority sets lower standards than those required by the Basel Accords and/or Capital Requirements Directive.
Superequivalence
Areas where a supervisory authority sets higher standards than those required by the Basel Accords and/or Capital Requirements Directive.
Supervisory authority
The authority responsible for regulatory supervision of the finance and banking sector.
Supervisory Review and Evaluation Process
The process under which the supervisor (FCA/PRA) reviews and evaluates a firm's ICAAP and determines its ICG, at the same time identifying any weaknesses or inadequacies and takinge prudential measures and other supervisory actions, if necessary.
Survival Period
The period during which a bank can continue operating under stressed conditions and still meet its payments obligations.
Swap
The exchange of one security for another, most commonly an FX swap, currency swap or interest rate swap.
Systemic (Capital) Buffers
The Global Systemically Important Institutions (G-SII) Buffer and the Systemic Risk Buffer (SRB).
Systemically Important Financial Institution
Financial institution whose distress or disorderly failure, because of its size, complexity and systemic inter-connectedness, would cause significant disruption to the wider financial system and economy.
Systemic Risk Buffer
Buffer set for ring-fenced banks and large building societies to reduce their probability of failure or distress commensurately with the greater cost their failure or distress would have for the UK economy.