HSBC 2012 Annual Report Download - page 534

HSBC HOLDINGS PLC
Shareholder Information (continued)
Glossary
532
Term Definition
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
Gap risk The risk of financial loss arising from a significant change in market price with no accompanying trading
opportunity.
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’. The latest official list of such banks comprised the 28 names, which
include HSBC, published by the Financial Stability Board in November 2012. 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.
Guarantee An undertaking by a party to pay a creditor should a debtor fail to do so.
H
Haircuts A discount applied by management when determining the amount at which an asset can be realised. The
discount takes into account the method of realisation including the extent to which an active market for
the asset exists.
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.
Investment grade Represents a risk profile similar to a rating of BBB- or better, as defined by an external rating agency.
IRB advanced approach A method of calculating credit risk capital requirements using internal PD, LGD and EAD models.
IRB foundation approach A method of calculating credit risk capital requirements using internal PD models but with supervisory
estimates of LGD and conversion factors for the calculation of EAD.
ISDA Master agreement Standardised contract developed by ISDA used as an umbrella under which bilateral derivatives contracts
are entered into.