Glossary

Assets adjusted for their associated risks using weightings established in accordance with the Basel Capital Accord. Certain assets are not weighted but deducted from capital.

A process by which assets or cash flows are transformed into transferable securities. The underlying assets or cash flows are transferred by the originator or an intermediary, typically an investment bank, to a special purpose entity which issues securities to investors.

An entity created by a sponsor, typically a major bank, finance company, investment bank or insurance company. An SPE can take the form of a corporation, trust, partnership, corporation or a limited liability company. Its operations are typically limited for example in a securitisation to the acquisition and financing of specific assets or liabilities.

A limited-purpose operating company that undertakes arbitrage activities by purchasing highly rated medium and long-term, fixed-income assets and funding itself with short term, highly rated commercial paper and medium-term notes.

Securities that pay a return linked to the value or level of a specified asset or index. Structured notes can be linked to equities, interest rates, funds, commodities and foreign currency.

Liabilities which, in the event of insolvency or liquidation of the issuer, are subordinated to the claims of depositors and other creditors of the issuer. Under Basel capital adequacy regulations subordinated debt is counted as Tier 2 capital.

Property loans extended to US households with poor solvency, and often extended without any proof of income. As these loans represent a high risk, they carry high floating interest.

Sub-prime mortgage loans are designed for customers with one or more high risk characteristics, such as: unreliable or poor payment histories; loan-to-value ratio of greater than 80%; high debt-to-income ratio; the loan is not secured on the borrower’s primary residence; or a history of delinquencies or late payments on the loan.

Definition of core equity under Basel I and II representing ordinary (common) shareholder’s capital plus hybrid preference share capital less goodwill and other adjustments. Under Basel III, the ratio has been further defined and limited – see Core Tier 1.

Qualifying subordinated debt and other Tier 2 securities in issue, eligible collective impairment allowances, unrealised available-forsale equity gains and revaluation reserves less certain regulatory deductions.