HSBC 2011 Annual Report Download - page 430

HSBC HOLDINGS PLC
Shareholder Information (continued)
Glossary
428
Term Definition
Exposure at default (‘EAD’) The amount expected to be outstanding after any credit risk mitigation, if and when the counterparty
defaults. EAD reflects drawn balances as well as allowance for undrawn amounts of commitments and
contingent exposures.
F
Fair value adjustment An adjustment to the fair value of a financial instrument which is determined using a valuation technique
(level 2 and level 3) to include additional factors that would be considered by a market participant that
are not incorporated within the valuation model.
First lien A security interest granted over an item of property to secure the repayment of a debt that places its
holder first in line to collect repayment from the sale of the underlying collateral in the event of a
default on the debt.
Five filters An internal measure designed to improve capital deployment across the Group. This examines the
strategic relevance of each business in each country, in terms of connectivity and economic
development, and the current returns, in terms of profitability, cost efficiency and liquidity.
Forbearance strategies Strategies that are employed in order to improve the management of customer relationships, maximise
collection opportunities and, if possible, avoid default, foreclosure or repossession. Such arrangements
include extended payment terms, a reduction in interest or principal repayments, approved external
debt management plans, debt consolidations, the deferral of foreclosures, other modifications and
re-ages.
FSA standard rules The method prescribed by the FSA for calculating market risk capital requirements in the absence of
VAR model approval.
Funded exposures A funded exposure is one where the notional amount of a contract is or has been exchanged.
Funding risk A form of liquidity risk arising when the liquidity needed to fund illiquid asset positions cannot be
obtained at the expected terms and when required.
G
Global Systemically Important
Bank (‘G-SIB’)
A bank that meets the criteria defined in the Basel Committee's final rules set out in their 4 November
2011 document ‘Global systemically important banks: Assessment methodology and the additional
loss absorbency requirement’. At 31 December 2011, the official list of such banks comprised the 29
names, which include HSBC, published by the Financial Stability Board also on 4 November 2011.
The Financial Stability Board is co-ordinating, on behalf of the G20 Group of Governors and Heads
of Supervision (‘GHOS’), the overall set of measures to reduce the moral hazard and risks to the global
financial system posed by global systemically important financial institutions (‘G-SIFI’s) of all kinds.
Government-sponsored
enterprises (‘GSE’s)
A group of financial services enterprises created by the US Congress. Their function is to reduce the cost
of capital for certain borrowing sectors of the economy, and to make them more efficient and
transparent. Examples in the residential mortgage borrowing segment are Freddie Mac and Fannie
Mae. GSEs carry the implicit backing, but are not direct obligations, of the US Government.
GPSP Awards Awards that define the number of HSBC Holdings ordinary shares to which the employee will become
entitled, generally five years from the date of the award, and normally subject to individual remaining
in employment. The shares to which the employee becomes entitled are subject to a retention
requirement until cessation of employment.
H
Historical rating transition
matrices (‘HRTM’)
HRTMs show the probability of a counterparty with a particular rating moving to a different rating over a
defined time horizon.
Home Equity Lines of Credit
(‘HELoC’s)
A form of revolving credit facility provided to US customers, which is supported in the majority of cases
by a second lien or lower ranking charge over residential property. Holdings of HELoCs are classified
as sub-prime.
I
Impaired loans Loans where the Group does not expect to collect all the contractual cash flows or expects to collect them
later than they are contractually due.
Impairment allowances Management’s best estimate of losses incurred in the loan portfolios at the balance sheet date.
Individually assessed
impairment
Exposure to loss is assessed on all individually significant accounts and all other accounts that do not
qualify for collective assessment.
Insurance risk A risk, other than a financial risk, transferred from the holder of a contract to the insurance provider. The
principal insurance risk is that, over time, the combined cost of claims, administration and acquisition
of the contract may exceed the aggregate amount of premiums received and investment income.
Internal Capital Adequacy
Assessment Process
The Group’s own assessment of the levels of capital that it needs to hold through an examination of its
risk profile from regulatory and economic capital viewpoints.
Internal Model Method (‘IMM’) One of three approaches defined by Basel II to determine exposure values for counterparty credit risk.
Internal ratings-based approach
(‘IRB’)
A method of calculating credit risk capital requirements using internal, rather than supervisory, estimates
of risk parameters.
Invested capital Equity capital invested in HSBC by its shareholders, adjusted for certain reserves and goodwill
previously amortised or written off.
IRB advanced approach A method of calculating credit risk capital requirements using internal PD, LGD and EAD models.