Glossary¶

This glossary provides definitions for key terms used throughout the documentation.

A¶

A-IRB (Advanced Internal Ratings-Based)¶

An IRB approach where the bank estimates PD, LGD, and EAD using internal models, subject to regulatory floors and approval.

Asset Correlation¶

A measure of how closely the value of an asset moves with systematic risk factors. Higher correlation means more sensitivity to economic conditions.

B¶

Basel 3.0¶

The international regulatory framework for banks implemented through CRR in the UK. Effective until December 2026.

Basel 3.1¶

The revised Basel framework implemented through PRA PS1/26, effective from January 2027. Introduces output floors, removes supporting factors.

BCBS¶

Basel Committee on Banking Supervision. The international body that develops banking standards.

C¶

Capital Requirement¶

The minimum amount of capital a bank must hold against its risk exposures. Calculated as RWA × Capital Ratio.

CCF (Credit Conversion Factor)¶

A percentage applied to off-balance sheet exposures to convert them to on-balance sheet equivalents for capital calculation.

CQS (Credit Quality Step)¶

A standardized credit quality scale (1-6) used to map external credit ratings to risk weights.

CRE (Credit Risk - Real Estate)¶

Basel Committee standards for credit risk treatment of real estate exposures.

CRM (Credit Risk Mitigation)¶

Techniques used to reduce credit risk exposure, including collateral, guarantees, and provisions.

CRR (Capital Requirements Regulation)¶

EU regulation 575/2013 as onshored into UK law. The primary regulatory framework for credit risk capital.

D¶

Default¶

An event where a counterparty fails to meet its credit obligations. Defined as 90+ days past due or unlikely to pay.

DPD (Days Past Due)¶

The number of days a payment is overdue.

E¶

EAD (Exposure at Default)¶

The expected exposure amount at the time of default. For on-balance sheet items, typically the gross carrying amount. For off-balance sheet: EAD = Drawn + (Undrawn x CCF).

Equity Exposure¶

Holdings of equity instruments (shares, funds) receiving dedicated risk weight treatment under CRR Art. 133 (SA) or Art. 155 (IRB Simple).

ECRA (External Credit Risk Assessment Approach)¶

Basel 3.1 approach for institutions using external ratings.

EL (Expected Loss)¶

The anticipated loss on a portfolio. Calculated as PD × LGD × EAD.

Exposure Class¶

A regulatory classification of exposures (Central Govt / Central Bank, Institution, Corporate, Retail, etc.) that determines applicable risk weights.

F¶

F-IRB (Foundation Internal Ratings-Based)¶

An IRB approach where the bank estimates PD but uses supervisory values for LGD and CCF.

FI Scalar¶

A 1.25x multiplier applied to the IRB capital requirement for large or unregulated financial sector entities (CRR Art. 153(2)).

Financial Collateral¶

Liquid assets (cash, bonds, equity) used as security for credit exposures.

FX Mismatch Haircut¶

An 8% additional haircut applied when collateral currency differs from exposure currency (CRR Art. 233).

G¶

GCRA (General Credit Risk Adjustment)¶

General provisions not allocated to specific exposures. May be included in Tier 2 capital.

Guarantee¶

Credit protection provided by a third party. Allows substitution of the guarantor's risk weight.

H¶

Haircut¶

A percentage reduction applied to collateral value to account for potential price volatility and liquidation costs.

HVCRE (High Volatility Commercial Real Estate)¶

Speculative commercial real estate development with higher risk weights.

I¶

IFRS 9¶

International accounting standard for financial instruments, including impairment (ECL) requirements.

Infrastructure Factor¶

CRR capital relief factor (0.75) for qualifying infrastructure project finance. Removed under Basel 3.1.

IPRE (Income-Producing Real Estate)¶

Real estate generating rental or sale income. Receives specialised treatment under slotting approach.

IRB (Internal Ratings-Based)¶

Approaches allowing banks to use internal risk estimates for capital calculation, subject to regulatory approval.

K¶

K (Capital Requirement)¶

The IRB formula output representing the capital requirement as a percentage of EAD.

L¶

LazyFrame¶

A Polars data structure representing deferred (lazy) computations on data, enabling query optimization.

LGD (Loss Given Default)¶

The percentage of exposure lost if default occurs, after accounting for recoveries.

LTV (Loan-to-Value)¶

The ratio of a loan amount to the value of the underlying collateral (typically property).

M¶

MA (Maturity Adjustment)¶

An adjustment factor in the IRB formula accounting for increased risk of longer-dated exposures.

MDB (Multilateral Development Bank)¶

International financial institutions (World Bank, EIB, etc.) that may receive preferential risk weights.

O¶

Overcollateralisation¶

The requirement that non-financial collateral must exceed the exposure value by a regulatory ratio to receive full CRM benefit. Ratios: financial 1.0x, receivables 1.25x, real estate/other physical 1.4x (CRR Art. 230).

Output Floor¶

Basel 3.1 requirement that IRB RWA cannot fall below 72.5% of the equivalent SA RWA.

P¶

PD (Probability of Default)¶

The likelihood that a counterparty will default within one year. Range: 0% to 100%.

PRA (Prudential Regulation Authority)¶

The UK banking regulator responsible for implementing Basel standards.

PSE (Public Sector Entity)¶

Non-commercial government bodies that may receive preferential treatment.

Q¶

QRRE (Qualifying Revolving Retail Exposures)¶

Unsecured revolving credit to individuals (credit cards, overdrafts) meeting specific criteria.

R¶

RGLA (Regional Government and Local Authority)¶

Sub-national government entities with varying risk treatments.

Risk Type¶

A classification for off-balance sheet exposures that determines the applicable CCF. Valid values: FR (full_risk, 100%), MR (medium_risk, 50%/75%), MLR (medium_low_risk, 20%/75%), LR (low_risk, 0%). See CRR Art. 111.

Risk Weight¶

A percentage applied to EAD to calculate RWA. Higher risk weights indicate higher risk.

RWA (Risk-Weighted Assets)¶

Assets adjusted for risk, used to calculate capital requirements. RWA = EAD × Risk Weight.

S¶

SA (Standardised Approach)¶

A capital calculation approach using regulatory-prescribed risk weights based on external ratings.

Scaling Factor¶

CRR 1.06 multiplier applied to all IRB RWA. Removed under Basel 3.1.

SCRA (Specific Credit Risk Adjustment)¶

Provisions allocated to specific exposures. Reduces EAD for SA, compares to EL for IRB.

SCRA (Standardised Credit Risk Assessment Approach)¶

Basel 3.1 approach for unrated institutions based on capital adequacy ratios.

Slotting Approach¶

A capital calculation method for specialised lending using supervisory categories (Strong/Good/Satisfactory/Weak).

SME (Small and Medium Enterprise)¶

Companies with turnover ≤ EUR 50m qualifying for preferential treatment.

SME Supporting Factor¶

CRR capital relief factor (0.7619/0.85) for SME exposures. Removed under Basel 3.1.

Central Govt / Central Bank (Sovereign)¶

Exposure to a government or central bank. The exposure class formerly known as "Sovereign".

Specialised Lending¶

Project finance, object finance, commodities finance, and real estate exposures with specific treatments.

T¶

Tier 1 Capital¶

High-quality capital including common equity (CET1) and additional Tier 1 instruments.

Tier 2 Capital¶

Supplementary capital including subordinated debt and general provisions.

U¶

Unexpected Loss (UL)¶

Losses above expected levels, covered by regulatory capital. UL = RWA × 8%.

Key Formulas Reference¶