AIRB	Advanced Internal Ratings Based.

Asset-Liability Management is active management of a bank’s balance sheet to maintain a mix of loans and deposits consistent with its goals for long-term growth and risk management. Banks, in the normal course of business, assume financial risk by making loans at interest rates that differ from rates paid on deposits. Deposits often have shorter maturities than loans and adjust to current market rates faster than loans. The result is a balance sheet mismatch between assets (loans) and liabilities (deposits). The function of asset-liability management is to measure and control three levels of financial risk: interest rate risk (the pricing difference between loans and deposits), credit risk (the probability of default), and liquidity risk (occurring when loans and deposits have different maturities).

A primary objective in asset-liability management is managing Net Interest Margin (NIM), that is, the net difference between interest earning assets (loans) and interest paying liabilities (deposits) to produce consistent growth in the loan portfolio and shareholder earnings, regardless of short-term movement in interest rates. The dollar difference between assets (loans) maturing or repricing and liabilities (deposits) is known as the rate sensitivity gap (or maturity gap). Banks attempt to manage this asset-liability gap by pricing some of their loans at variable interest rates.

Amore precise measure of interest rate risk is duration, which measures the impact of changes in interest rates on the expected maturities of both assets and liabilities. In essence, duration takes the gap report data and converts that information into present-value worth of deposits and loans, which is more meaningful in estimating maturities and the probability that either assets or liabilities will reprice during the period under review. Besides financial institutions, non financial companies also employ asset-liability management, mainly through the use of derivative contracts to minimize their exposures on the liability side of the balance sheet.

Back-testing It is required by the regulators on a periodic basis, in order to assess the adequacy of allocated market risk capital (derived from VaR) as a cushion to absorb losses. Back-testing is the comparison of ex-ante VaR to ex-post Profit and Loss (P&L). Back-testing must be conducted at the total Bank level on a quarterly basis, as well as at a legal entity level as required. In addition to the quarterly Bank-level backtesting process, Risk Analytics must also perform hypothetical back-testing by product, typically at the individual desk level, on a rotating cycle, to be determined by Risk Management. This ensures that the individual desk VaR models meet regulatory standards for the advanced measurement of regulatory capital.

Basis Risk It arises when a hedge for particular financial instrument is not perfect i.e. the price changes in entirely opposite directions from each other. Example would be a spot position being hedged by a future.

Credit Exposure It is defined as the potential exposure that may result from a client’s inability to meet its contractual obligations either due to insolvency or another event of default. Exposure can be measured both on a PSE and PSLE basis.

Credit Risk Itis the loss given default arising from a default or insolvency taking into account loss mitigation techniques applied to a product or individual credit. A risk amount is calculated by adjusting the exposure amount to reflect the covenants, collateral/support arrangements and other losses.

mitigation such as hedging.

Cross-Border Facilities Cross-Border Facilities include facilities known to carry direct cross-border risk or which are determined to carry direct cross-border risk by Cross-Border Risk Management; this does not include facilities that are deemed to carry cross-border risk as a result of a funding gap between local assets in any currency and local liabilities in any currency (i.e., ‘Local Franchise Exposure’).

CS 01 It reflects the change in market value of CDS in response to a 1 basis point change in the swap premium. Thus, it the change in a CDS contract market for a one basis point parallel shift in the credit curve.

Convexity Duration is a linear measure of how the price of a bond changes in response to interest rate changes. As interest rates change, the price does not change linearly, but rather is a convex function of interest rates. Convexity is a measure of the curvature of how the price of a bond changes as the interest rate changes. Specifically, duration can be formulated as the first derivative of the price function of the bond with respect to the interest rate in question, and the convexity as the second derivative. In other words, Convexity measures the rate of change of Modified Duration. MD is good for small change in interest rate but is inaccurate if there is change in interest rate more than 200-300 basis points. MD is the first approximation but Convexity is the 2^nd approximation.

Convexity also gives an idea of the spread of future cashflows. (Just as the duration gives the discounted mean term, so convexity can be used to calculate the discounted standard deviation, say, of return.)

Convexity can be both positive and negative. A bond with positive convexity will not have any call features – ie the issuer must redeem the bond at maturity – which means that as rates fall, its price will rise.

On the other hand, a bond with call features – ie where the issuer can redeem the bond early – is deemed to have negative convexity, which is to say its price should fall as rates fall. This is because the issuer can redeem the old bond at a high coupon and re-issue a new bond at a lower rate, thus providing the issuer with valuable optionality.

Mortgage-backed securities (pass-through mortgage principal prepayments) with US-style 15 or 30 year fixed rate mortgages as collateral are examples of callable bonds.

Cross-Border Facilities Cross-Border Facilities include facilities known to carry direct cross-border risk or which are determined to carry direct cross-border risk by Cross-Border Risk Management; this does not include facilities that are deemed to carry cross-border risk as a result of a funding gap between local assets in any currency and local liabilities in any currency (i.e., ‘Local Franchise Exposure’).

Capital Markets Approval Committee (CMAC) – The Policy on New Products, New Activities and Complex Transactions is determined by this committee & CMAC Policy applies to all businesses and details the specific procedures required for the review and approval of any new product, activity and complex transactions.

CAGID	Credit Approval Group Identification. CAGIDs are the numerical standard for representing Credit aggregations of legal obligors (GFCIDs), within the Corporate Investment Banking Groups. CAGIDs are needed to enable Banks to capture the highest level view of its Credit Relationships from a Control Unit perspective, the aggregation that the Institution forms, depends on the way that Credit / Risk Management are prepared to extend Credit, and the basis on which this consolidated Risk is assessed.
CCF	Credit Conversion Factor or Combined Credit Facility
Clearing Risk	The risk that occurs when the Bank acts on a customer’s instruction to transfer or to order the transfer of funds before the Bank is reimbursed. Clearing risk is the possibility that the bank may not be reimbursed on the same value date or subsequently for payments made on behalf of clients.
CMTM	Current Mark to Market
Contingent Risk	The risk that potential customer obligations will become actual obligations, that is, funds advanced and will not be repaid on time. Contingent risk occurs in products such as LCs and guarantees. It exists for the entire life of the transaction or until the contingent risk becomes direct lending risk.
CCR	Counterparty Credit Risk. It is the total replacement cost (obtained by “marking to market”) of all its contracts with positive value.
Counterparty MTA	Counterparty Minimum Transfer Amount
Covering Limit	The maximum credit exposure a bank is ready to accept for a client, group or transaction for Loans, Derivatives, Guarantees and Trade finance.
Credit Exposure Factor (CEF)	CEF represents a percentage of notional that expresses the risk associated with the specific transaction. A static CEF number is applied through the full tenor of the transactions.
CREL	Credit Risk Exposure Limit. This is equivalent to PSE.
CRF or CEF	Credit Risk Factor/Credit Exposure Factor. Both are same.
CRGID	CREDIT Risk Grouping Identification, are the numerical standard for representing a group of non-legally related entities that need to be consolidated for Credit purposes within the same Groups. CRGID numbers are 10 digits long and incorporate a check digit at the end. They may be identified by their format of 99999xxxxx.
Cross-Product Netting	Cross-Product Netting refers to the inclusion of transactions of different product categories within the same netting set pursuant to the Cross-Product Netting Rules set out in the Basel II Accord.
Current Exposure Method (CEM)	Under the Current Exposure Method, banks must calculate the current replacement cost by marking contracts to market, thus capturing the current exposure without any need for estimation, and then adding a factor (the “add-on”) to reflect the potential future exposure over the remaining life of the contract.
Current Market Value (CMV)	Current Market Value (CMV) refers to the net market value of the portfolio of transactions within the netting set with the counterparty. Both positive and negative market values are used in computing CMV.
CVA Risk	Counterparty Credit Risk arises from the probability of the counterparties defaulting in particular trade when due. CVA is the process through which counterparty credit risk is valued, priced and hedged. Thus, CVA is the Market Price of Counterparty Credit risk. Applies mainly to uncollateralized derivatives assets. CVA Risk refers to the risk of loss due to changes in the creditworthiness of a counterparty in a derivatives transaction.
Correlation Risk	Prices of assets tend to move in tandem, even if they do not move in tandem they are at least not completely independent and uncorrelated. This type of risk is highlighted for portfolios having basket trades.
Debt Bridge Loan	It is a debt commitment whose primary source of repayment is the issuance of public or private debt, or asset sales. This definition excludes the following non-bridge exposures: (1) loans to issuers whose international or global-scale corporate rating is at least A2 (stable); (2) loans whose intended repayment is a syndicated loan.
Delivery Versus Payment (DVP)	A securities industry procedure in which the buyer’s payment for securities is due at the time of delivery. Security delivery and payment are simultaneous.
Direct Risk	The risk that client obligations to repay funds advanced will not be fulfilled on time. Direct Lending Risks occurs in products ranging from loans and overdrafts to credit cards and residential mortgages. It exists for the entire life of a transaction.
DAR	= Default at Risk = EAD * LGD
DOL	Daylight Overdraft Limit, applicable for a given day only.
Dynamic Gap	Asset-liability gap model that takes into account projected future balances or the difference between interest sensitive assets and interest sensitive liabilities at specific future time periods, as opposed to static gap.
DRM	Debt Rating Model
DVA Risk	Debit Valuation Adjustment is reflected in the P&L statement as the dealer’s counterparty credit risk to the client. DVA Risk is the risk that changes in the Bank’s own credit spread will impact the value of Bank’s derivatives portfolio which may impact Profit and loss volatility, Hedge effectiveness and Regulatory capital requirements. Applies mainly to uncollateralized derivatives liabilities.
DLE	Derivatives Loan Equivalent. It is the credit risk exposure calculated and is used for limit monitoring and credit charge computation. DLE = Facility Exposure + Counterparty Exposure For Collateralized Trade, DLE = PE at 95% = CMTM For Non- Collateralized Trade, DLE = Min of (PE, (25% of PE) + (75% of EE))
EAD	Exposure At Default. It is a measure of potential exposure (in currency) as calculated by a Basel Credit Risk Model for the period of 1 year or until maturity whichever is sooner. Based on Basel Guidelines, Exposure at Default (EAD) for loan commitments measures the amount of the facility that is likely to be drawn if a default occurs. Under Basel II a bank needs to provide an estimate of the exposure amount for each transaction, commonly referred to as Exposure at Default (EAD), in banks’ internal systems. All these loss estimates should seek to fully capture the risks of an underlying exposure
Earnings At Risk (EAR) Economic Value of Equity (EVE)	The quantity by which net income is projected to decline in the event of an adverse change in prevailing interest rates. One measure of an institutions exposure to adverse consequences from changes in prevailing interest rates. Cash flow calculation that takes the present value of all asset cash flows and subtracts the present value of all liability cash flows. This calculation is used by banks for asset/liability management. The value of a bank’s assets and liabilities are directly linked to interest rates. By calculating its EVE, a bank is able to construct models that show the effect of different interest rate changes on its total capital. This risk analysis is a key tool that allows banks to prepare against constantly changing interest rates.
Effective Expected Exposure	Effective Expected Exposure at a specific date is the maximum expected exposure that occurs at that date or any prior date. Alternatively, it may be defined for a specific date as the greater of the expected exposure at that date, or the effective exposure at the previous date. In effect, the Effective Expected Exposure is the Expected Exposure that is constrained to be non-decreasing over time.
Effective Maturity under the Internal Model Method	CCR is the risk that the counterparty to a transaction could default before the final settlement of the transaction’s cash flows. An economic loss would occur if the transactions or portfolio of transactions with the counterparty has a positive economic value at the time of default. Unlike a firm’s exposure to credit risk through a loan, where the exposure to credit risk is unilateral and only the lending bank faces the risk of loss, CCR creates a bilateral risk of loss.
ENE	Expected Negative Exposure used in derivatives trading. Represents the expected value of potential losses to the bank if the counterparty defaults. ENE estimates the expected exposure of the Bank where the bank owes money to the counterparty. So, it is “negative” exposure from the bank’s perspective.
EPE	Expected Positive Exposure. It is a measure of counterparty credit risk used primarily in derivatives trading. It estimates the average expected exposure over the life of a contract where the counterparty owes money to the bank. Calculated as the weighted average over time of expected exposures where the weights are the proportion that an individual expected exposure represents of the entire time interval; when calculating the minimum capital requirement, the average is taken over the first year or, if all the contracts within the netting set mature before one year, over the time period of the longest-maturity contract in the netting set.
ESF	Expected Short Fall. It captures the tail severity. It is the risk measure that gives the average loss in the worst-case scenarios at a 99% confidence level.
ETE	Expected Tail Exposure is the risk measure used in counterparty credit risk and XVA frameworks to estimate the average exposure in the worst-case scenarios, specifically, in the tail of the exposure distribution at 99% confidence level.
Expected Exposure	Expected exposure (in accordance with Part 1 of Annex III of the Banking Consolidation Directive (Definitions) and for the purpose of BIPRU 13 (The credit risk treatment of derivative instruments)) is the average of the distribution of exposures at any particular future date before the longest maturity transaction in the netting set matures.
Expected Loss	= PD* LGD* EAD
Extending Unit Due Diligence (EUDD)	When there is a facility extended to a local subsidiary based on Less-than-Full Support from a related entity, no Extending Unit Due Diligence is required. However, if there are any significant adverse changes or deterioration in the condition of the local subsidiary, then the Credit Officer in the Extending Unit is required to communicate the situation to the Control and/or Approving Unit and complete the Early Warning Template.
Equity Bridge Loan	An Equity Bridge Loan is a commitment whose primary source of repayment is the issuance of equity securities.
Facility Risk Ratings	FRR approximates a ‘Loss Norm’ for each facility, and is the product of two components: The Default Probability of the Obligor, i.e. the Final ORR, And the Loss Given Default (‘LGD’). FRRs are assigned on a scale of 1 to 10, with sub-grades, where ‘1’ is the best quality risk and ‘7-’ is the worst for performing or accruing facilities. The 8, 9 and 10 rating categories indicate facilities that have been placed on non-accrual status.
FVA Risk	Funding Valuation Adjustment Risk is the cost that arises when a dealer is unable to directly pass variation margin from an out-of-the-money client to an in-the-money client. The dealer then has to fund the margin itself, generating a cost. Applicable to uncollateralized derivatives.
FIRB	Foundation Internal Ratings Based
FRR	Facility Risk Rating
GFCID	Global Finance Customer Identifier is an unique 10 digit number to identify customers which represent legal entities.
GFPID	The legal ownership of an entity is represented by the Global Finance Parent Identifier (GFPID). In the context of a GFCID, GFPID means “more than 50%” ownership.” Thus, a parent entity that has a 49.99% or 50% ownership is not enough. The ownership percentage must be at least 50% plus 1 share in order to cause one GFCID to be owned by another. The GFPID reflects the ultimate parent, while the direct parent/s reflects the immediate parent/s. For an ultimate parent record, the GFCID and the GFPID are the same.
Gapping	Acquiring assets with anticipated maturities, or durations, longer or shorter than the liabilities used to fund those assets. This is the conventional circumstances of bank lending, in other words, borrowing short and lending long, creating interest rate risk that is managed through Asset-Liability Management.
GFRN	Global Facility Reference Number
GMR	Global Market Risk-Calculates Market Risk for Corporate Investment Banking by Montay Carlo simulation method.
GRR	Global Risk Reporting
Hybrid Bridge Loan	It is a debt commitment whose intended source of repayment is the issuance of public or private equity (including convertible debt), but for whom the debt capital markets are a viable alternative if the equity markets are not available.
IM	Initial Margin. Needs to be posted as per Regulation or CCP requirements.
Inflation Risk	The value of assets or income decreases as inflation increases. Inflation Risk will shrink the purchasing power of a currency.
KRI	Key Risk Indicators are the measures summarizing the frequency, severity and impact of Operational Risk events or corporate actions occurred in the bank during a reporting period.
KVA Risk	Capital Valuation AdjustmentRiskis the cost associated with holding regulatory capital against potential losses. KVA Risk refers to the risk that changes in capital requirements or capital costs will impact the value of a derivatives portfolio. KVA reflects the present value of the expected cost of capital over the life of a trade.
Liquidity	Ability of current assets to meet current liabilities when due. The degree of liquidity of an asset is the period of time anticipated to elapse until the asset is realized or is otherwise converted into cash. A liquid company has less risk of being unable to meet debt than an illiquid one. Also, a liquid business generally has more financial flexibility to take on new investment opportunities. Immediate convertibility into cash without significant loss of value. For example, marketable securities are more liquid than fixed assets, because securities are actively traded in an organized market.
Liquidity Loss	It is the risk to an institution’s financial condition or safety and soundness arising from its inability (whether real or perceived) to meet its contractual obligations. Liquidity risk can also be defined as the risk that a given security or asset cannot be sold quickly enough in the market to prevent a loss.
LGD	Loss Given Default = 1- Recovery Rate (in Decimals)
LTFS	Less-than-Full Support can take several forms, including written conditional guarantees, Letters of Support, Letters of Comfort, Letters of Awareness, and Verbal Assurances. Less-than-Full-Support may be relied upon as one of the primary sources of repayment, or one of the principal considerations in the decision to extend credit, when certain conditions are fulfilled.
LEA	Loan Equivalent Amount = Alpha * EPE Economic Capital (Actual) Where Alpha = Economic Capital (EPE)
M	Effective Maturity. M is the remaining maturity in years of a derivative or exposure, adjusted for factors like amortization or early termination rights. Higher the M, higher the risk and higher the capital requirement.
Modified Duration	A measure of the price sensitivity of a bond to interest rate movements. Equal to the Macaulay Duration divided by (1+ (r/k)) where r is the YTM of the Bond and k is the number of compounding periods per year or cash flows per year. It is therefore inversely proportional to the approximate percentage change in price for a given change in yield. This is one of two ways to calculate duration, the other being Macaulay duration. In other words, Modified Duration measures the change in the market value of a fixed income instrument due a 100 basis point change in the Yield.
Macaulay duration	It is named after Frederick Macaulay who introduced the concept, is the weighted average maturity of a bond where the weights are the relative discounted cash flows in each period.
Matched maturities	Coordination of the maturities of a financial institution’s assets (such as loans) and liabilities (such as certificates of deposit and money-market accounts). For instance, a savings and loan might issue 10-year mortgages at 10%, funded with money received for 10-year CDs at 7% yields. The bank is thus positioned to make a three percentage- point profit for 10 years. If a bank granted 20-year mortgages at a fixed 10%, on the other hand, using short-term funds from money-market accounts paying 7%, the bank would be vulnerable to a rapid rise in interest rates. If yields on the money-market accounts surged to 14%, the bank could lose a large amount of money, since it was earning only 10% from its assets. Such a situation, called a maturity mismatch, can cause tremendous problems for financial institutions if it persists, as it did in the early 1980s.
Mismatch	Situation in Asset-Liability Management when interest-earning assets and interest expense liabilities do not balance. An example is when an asset is funded by a liability of a different maturity. The conventional circumstances in banking are that banks and savings institutions borrow short and lend long. This means funding 30-year mortgages with short-term deposits, expecting that short-term deposits can be rolled over at maturity dates. Also known as a mismatched book. Contrast with matched maturities.
Microfinance Margining	It is the provision of segment-specific financial services to low income individuals. Microfinance Institutions (MFI’s) are institutions that derive the majority of their revenues from the provision of micro financial services. MFI’s include banks, not-for-profit organizations, non-bank regulated financial intermediaries, finance companies, cooperatives, and credit unions. Under a margining agreement, a counterparty may be required to post collateral to secure its obligations on outstanding trading or derivative transactions. These arrangements can be unilateral or bilateral and typically require collateral to be posted/returned as the mark-to-market value of outstanding contracts changes (“Variation Margin”). Thresholds may be established that allow for levels of unsecured exposure before posting is required and certain arrangements may also involve posting of upfront collateral on certain transaction (“Initial Margin” or “Independent Amounts”) to provide one party with a level of incremental protection against future market moves. Agreements also usually specify the frequency which calls for delivery or return of collateral can be made and the minimum increment of collateral that must be transferred (“Minimum Transfer Amounts”).
Margin Period of Risk (MPOR):	MPOR is the time interval between the last margin call date and the date, in the event of a counterparty default, when all contracts with the counterparty could be terminated and replaced, or by which the market risk resulting from the termination of defaulted contracts could be hedged. During the margin period of risk, Bank is at risk for an increase in the replacement cost of the contracts subject to the margin agreement. The margin period of risk is the sum of the time interval between margin calls (e.g., one day, one week, one month) plus, generally, 5 days to account for:  The time interval to determine that the counterparty has failed to post additional margin collateral required, e.g., one day.  Notification requirements and contractual grace periods, e.g., two days.  The estimated time required to replace the terminated contracts or to hedge the price risk of the terminated contracts, e.g., two days. Note that the ‘+ 5 day convention’ is a general practice and can be made longer when local market practices or conditions warrant. Less than 5 days is an exception to policy, and must be approved by the Head of Risk, the General Counsel and Risk Architecture.
Market Liquidity Risk	It is the risk that a Bank faces when it is unable to easily liquidate or offset a particular position without incurring lossess due to inadequate market depth or market disruptions. This can happen in a highly volatile market or due to some adverse development related to a specific company.
Model Risk	It is the error in risk measurement or valuation that arises from the fact that modeling assumptions are imprecise and/or become invalid over time.
Margin Agreement	A Margin Agreement is a contractual agreement or provisions to an agreement under which one counterparty must supply collateral to a second counterparty when an exposure of that second counterparty to the first counterparty exceeds a specified level.
Margin Threshold	A Margin Threshold is the largest amount of an exposure that remains outstanding until one party has the right to call for collateral.
ME	Month End
MLIV	Maximum Likely Increase in Value= Amount*CEF. Always positive.
MVA Risk	Margin Valuation Adjustment is the cost of funding the initial margin required to be held against a derivatives trade. MVA is the valuation adjustment made to the price of a derivative to reflect the cost of funding the initial margin that must be posted as per regulation or central clearing requirements. MVA Risk is the risk that changes in the cost or amount of required initial margin will affect the value and profitability of a derivative position.
Net to Gross Ratio (NGR)	Level of net replacement cost divided by level of gross replacement cost for transactions subject to legally enforceable netting agreements.
Netting	It is a legal basis (normally with a written agreement between Bank and counterparty) that permits the parties to treat all transactions between the parties as being part of a single agreement and provides for netting contracts with a positive mark-to-market against contracts with a negative mark-to market into a single amount owed by or to the counterparty upon termination.
Netting Set	SFTs are transactions such as repurchase agreements, reverse repurchase agreements, security lending and borrowing, margin lending transactions, where the value of the transactions depends on market valuations and the transactions are often subject to margin agreements.
Negative Gap	Repricing or duration mismatch in which interest sensitive liabilities exceed interest sensitive assets. A bank whose interest sensitive liabilities reprice more quickly than interest sensitive assets is said to be liability sensitive.
NTR	Near Term Risk referring to the likelihood of a risk event occurring in near future, say, within the next 12 months or less.
ORR	Obligor Risk Rating. It refers to the internal credit rating assigned to the borrower by the bank & assesses the creditworthiness on a scale of 1–10, or A–D.
PD	Probability of Default. The possibility of counterparty defaulting in near future, say, 12 months or less.
Portfolio	A group of investments held by an investor, investment company, or financial institution e.g. any collection of deals. At a higher level a portfolio is any collection of counterparties (e.g., at regional or industry levels).
Pre-Settlement Exposure (PSE)/ Pre Settlement Risk	Pre Settlement Risk/Pre Settlement Exposure. Both are same. PSR is the estimated amount at risk if and when the counterparty defaults on a contractual obligations and the bank must replace the contract with that of another counterparty at the then prevailing and possibly, unfavourable market price. It is the cost for Bank to replace the contract between the time traded and default. PSE is an estimate of the ‘maximum’ exposure, at a 97.7% confidence level, that counterparty may owe over the life of a transaction (or a portfolio of transactions). Pre Settlement Exposure = Max (0, CMTM+MLIV). CMTM may be negative but if (CMTM+MLIV) is also negative, then PSE is set to Zero.
Pre-Settlement Loan Equivalent Exposure (PSLE)	PSLE is an estimate of the ‘expected’ exposure, on average, that a counterparty may owe over the life of a transaction (or a portfolio of transactions), at an approximately 65% confidence level. Pre Settlement Loan Equivalent= Maximum (0,CMTM +(0.2*MLIV)).
PSE and PSLE Under a Margin Agreement	Margining agreements can reduce calculated PSE or PSLE exposure to a counterparty:  The value of margin held can be used to reduce outstanding exposure against the facility (PSE) or obligor limits (PSLE).  The estimated potential future exposure (“Maximum Likely Increase in Value” or “MLIV”) can be reduced because the time frame over which the potential increase in exposure is calculated can be reduced from the total transaction tenor to a rolling “Margin Period of Risk” over the life of the transaction. Although a margin agreement may reduce calculated PSE or PSLE, the Bank continues to have potential credit exposure to the counterparty over the full tenor of the transactions. Any estimate of the margin period of risk should be conservative and recognize that in a default scenario, markets are more volatile and there is less liquidity. Margin reduces PSE for measurement of exposure under facilities as well as PSLE for monitoring under Obligor Limits.
Active Excesses to PSE Facilities	Active excesses are those excesses to facilities that result from new transactions that were not pre-approved by Risk Management. Businesses are encouraged to obtain pre-approvals whenever practical to minimize such excesses. No incremental trading is permitted unless the excess is corrected, or a new higher facility amount is established and Total Facilities are re-approved in accordance with the Total Facilities Approval Grid. Active excesses require correction within 20 business days.
Passive Excesses to PSE Facilities	Passive excesses are excesses that result solely from the changes in the mark to-market valuation of existing contracts. No incremental trading is permitted unless the excess is corrected, or a new higher facility amount is established and Total Facilities are re-approved in accordance with the Total Facilities Approval Grid. Passive excesses must be advised to the Approving Unit at least monthly. The Approving Unit may want to consult with the trading unit regarding appropriate action, if any, to be taken. It is not necessary to adjust approved PSE facilities to cover passive excesses until the next credit review, as long as no new risk-increasing trades are undertaken. Risk-reducing trades – that result in a lowering of the overall PSE – are permitted.
PVBP Positive Gap	Price Value of a Basis Point, also called the dollar value of a basis point (DV01), is the change in the price of a given bond if the required yield changes by one basis point. There is an inverse relationship between bond price and yield. As bond prices decrease, their yields increase and vice versa. The degree of change in bond price for each basis point change in yield is determined by a number of other factors, such as the bond’s coupon rate, time to maturity and credit rating. Maturity or repricing mismatch in a bank’s assets and liabilities where there are more assets maturing or repricing in a given period than liabilities. A bank with a positive gap is asset sensitive. The opposite is negative gap.
Repo-VAR	“Repo-VAR” is used to refer to the use of VAR methodology for the exposure calculation for repurchase agreements (SFTs), and to distinguish from the use of VAR methodology for market risk calculation.
Receive Versus Payment (RVP)	An instruction accompanying sell orders, stating that only cash will be accepted in exchange for delivery of the securities.
Risk Weighted Asset (RWA)	This is the Basel II unit of measure of economic loss for unexpected losses under Pillar 1.
RWA	For the standardized approach, the formula to calculate RWA for credit risk is RWA = exposure at default (EAD) x the risk weight (%) assigned to risky exposures by a banking supervisor. For the internal ratings based (IRB) approaches, the calculation of minimum regulatory capital is based on parameters driven by the bank’s internal models and RWA is calculated as RWA = minimum regulatory capital x 12.5 (the inverse of 8%). The gross-up is 12.5 times since minimum regulatory capital must be at least 8% of RWA.
Repricing opportunities	Days when bank loans or deposits are subject to a change in interest rate. Interest rates in variable rate consumer loans and adjustable rate mortgages may reprice at scheduled intervals, for example, semiannually or annually, based on changes in an index rate. Other loan and deposit rates can change more frequently, sometimes even daily. A bank with more one-year deposit liabilities changing rates than one-year assets is said to be liability sensitive; if more one-year assets reprice than liabilities, it is asset-sensitive. maturity date of a certificate of deposit or other time deposit that can be renewed (rolled over) at a different rate.
Refinance Risk	Risk that a bank will be unable to refinance maturing deposit liabilities when they come due at maturity, at acceptable prices and terms. When banks go to the market to refinance liabilities, the risk is that they may be unwilling or, in extreme rate volatility, unable to acquire deposits necessary for making new investments. Refinance risk applies to money market deposits and corporate debt, such as term debentures. The risk for the institution is that it may not be able to roll over those liabilities at an affordable rate.
Recouponing	It is an arrangement, typically applicable to derivatives done under an ISDA agreement, where, instead of posting collateral if contractual thresholds on mark-to-market exposure are exceeded, economic terms of an existing transaction or transactions are altered.
Reinvestment Risk	Risk that rates will fall causing cash flows from an investment (dividends or interest), assuming reinvestment, to earn less than the original investment.
RCSA	Risk Control & Self Assessment is an Operational Risk management tool used by business managers to transparently assess risk and control strengths and weaknesses against a Control Framework.
Real Estate Asset Sale Bridge Loan	It is a non- or limited-recourse debt commitment whose sole source of repayment is the proceeds from the sale of a specific asset or group of assets. Real Estate Asset Sale Bridge Loans approvals must be done under a Credit Program, and are subject to the real estate score card appropriate to the deal.
Securities Underwriting	It is a capital markets product where the Bank provides debt or equity issuance services to its clients.
Secured Finance Transactions (SFTs)	Describes the transactions whereby securities are temporarily transferred by one party (the lender) to another (the borrower). The borrower is obliged to return the securities to the lender, either on demand, or at the end of any agreed term. For the period of the loan the lender is secured by acceptable assets delivered by the borrower to the lender as collateral. Examples of SFTs are sale and repurchase agreements or buy/sell backs.
SR	Settlement Risk. The risk that occurs when the bank simultaneously exchanges value with a counterparty for the same value date and the bank is not able to verify that payment has been received until after the bank has paid or delivered its side of the transaction. The risk is that the bank delivers but does not receive delivery from the counterparty. If the Bank has effected payment and the counterparty does not, then the bank incurs direct lending risk.
Supranational	A Supranational entity (also known as a multinational/multilateral entity) is created by act of a Treaty, signed and ratified by Sovereign Governments. A Supranational entity operates across national boundaries, and is involved in activities that are, by definition, not provided by commercial organizations. For Example: World Bank, Asian Development Bank etc.
Stressed LGD	= Base LGD * LGD Uplift
Syndicated Second Lien Loans	Second Lien Loans are loans with a security position that is less than ‘pari passu’ with other senior bank debt. Second Lien Loans that are structured for syndication in the bank market must also be approved as Bridge Commitments. Bridge Commitments must be approved as per the ICG Bridge Commitment Procedures, which requires, among other approvals, approval by the Debt Commitment Committee or a Senior Bridge Approver.
Skew Risk	When implied volatility is plotted against strike price, the resulting graph is typically downward sloping for equity options markets, or valley-shaped for currency options markets. Skewness in risk denotes that observations are not spread symmetrically around an average value.
Static Gap	The simplest measure of short-term net interest exposure, or difference between assets and liabilities of comparable repricing periods. It generally is calculated for periods under one year, in multiple periods, or time frames of 0 to 30 days, 31 to 90 days, or 91 to 180 days. By itself, interest rate gap is an imprecise measurement, because it fails to consider interim cash flows, loan prepayment, average maturity, and other factors. Contrast with dynamic gap.
Stress Testing	The Stress testing process can be classified into 2 key categories;  Global Systemic Stress Testing (GSST)  Business Specific Stress Testing (BSST) Both categories of stress testing can be based upon either a range of historical periods of market stress or purely hypothetical future market events. GSST are designed to quantify the potential impact of extreme market movements on a firm wide basis and are performed at least on a monthly basis. The Capital and Stress Testing working group is responsible for developing the stress scenarios and for reviewing them quarterly to ensure that they remain appropriate in light of current and anticipated market conditions. BSST are developed in response to business or market-specific concerns and are performed periodically. Such stress scenarios are usually idiosyncratic in nature and are designed to probe the risks of each specific portfolio, particularly those risks that are not fully captured by other risk measures like VaR or GSST. It is the joint responsibility of Risk Management and the Business to propose the parameters of the BSST, and to review them at least quarterly to ensure that they are relevant, complete and well documented.
Trading Book	Itincludes all the assets that are traded in the market, that is, those assets like Shares, bonds, derivatives, CPs, Mutual Funds and so on that are listed on Stock Exchanges and traded on a daily basis.
Total Facilities	Total facilities include all existing and proposed Direct, Contingent, Market, Clearing and Settlement whether committed or uncommitted.
Troubled Debt Restructurings(‘TDRs)	TDRs involve off-market concessions that are made based on the creditor’s assessment that the making of the concession improves their recovery.
Value At Risk (VAR)	Calculates the maximum loss expected (or worst-case scenario) on an investment position over a given time period (10-day horizon) and given a specified degree of confidence, for example, 99%.
VM	Variation Margin is the daily or Intra-day collateral requirement between counterparties to cover current MTM losses or gains on a derivatives portfolio.

Vega Risk It is defined as the rate of change of the value of a portfolio of derivatives with respect to the volatility of an underlying asset.

Volatility of Vol Risk Advanced option pricing models do not take a constant volatility as a input instead the take stochastic volatility. Thus, volatility itself is becomes variable and this gives rise to another type of risk which is due to volatility in calculating volatility of an asset.

VaR It estimates the potential loss in the value of a position or a portfolio, under normal market conditions, within a defined confidence level, and over a specific time period. VaR is used to establish internal limits representing the maximum loss that a position might exhibit resulting from a one-day loss measured on a historical basis with a determined confidence level. VaR is also used for internal limits as well as external regulatory reporting purposes.

Zero Gap Condition where a bank’s interest sensitive assets and interest sensitive liabilities are balanced perfectly for a given time period. This state of equilibrium occurs when maturities of assets and liabilities subject to repricing are matched evenly. In reality, this rarely happens because the dynamics of a competitive market make it difficult to match maturities of deposits and loans (a process called matched funding), and because banks, as credit intermediaries, have to take some maturity risk when they make loans. Banks can, however, control the interest rate risk created by maturity imbalances by engaging in hedge tactics, such as financial future and interest rate swaps.

LGDU is the LGD applicable for an unsecured exposure.

LGDS is the LGD applicable to exposures secured by collateral.