ALM and bank risk glossary.
Key concepts in interest rate risk, liquidity and capital: definition, calculation method, regulatory requirement and practical challenges.
EVE (economic value of equity)
The value-based measure of interest rate risk in the banking book: how much does the economic value of equity change when the yield curve is shocked?
NII (net interest income)
The earnings-based measure of interest rate risk: how does net interest income over the coming years react to a rate move?
IRRBB (interest rate risk in the banking book)
The risk that interest rate movements erode a bank's economic value or earnings, on positions outside the trading book.
LCR (liquidity coverage ratio)
The ratio that checks whether a bank holds enough high-quality liquid assets to cover thirty days of cash outflows under stress.
NSFR (net stable funding ratio)
The structural ratio that checks whether a bank's assets and activities over a one-year horizon are funded by sufficiently stable sources.
Survival horizon
How long a bank can meet its cash outflows under stress, using only its liquidity reserves and without normal market access.
Run-off
The projection over time of how balance sheet positions amortise: the common basis for interest rate, liquidity and margin measures.
Behavioural model
The model that adjusts the contractual schedule to reflect what clients actually do: repay early, keep their deposits, draw on their lines.
FTP (funds transfer pricing)
The internal price at which asset liability management buys and sells funds with the business lines: it separates commercial margin from transformation income.
ICAAP (internal capital adequacy assessment process)
The process through which a bank shows, with its own methods, that it holds sufficient capital for its risks on a lasting basis.
ILAAP (internal liquidity adequacy assessment process)
The internal process through which a bank continuously assesses the adequacy of its liquidity and funding, short term and structurally, under normal and stressed conditions.
CSRBB (credit spread risk in the banking book)
The risk that changes in credit spreads affect the economic value of equity and the earnings of the banking book, for the part not explained by IRRBB or by default risk.
ALMM (additional liquidity monitoring metrics)
The additional metrics supervisors require to monitor liquidity beyond the LCR and NSFR.
Capital ratio
The ratio of a bank's own funds to its risk-weighted assets: the measure of its capacity to absorb losses.
RWA (risk-weighted assets)
A bank's exposures weighted by their risk: the denominator of capital ratios.
Leverage ratio
The non-risk-based ratio that caps a bank's leverage, complementing risk-based capital ratios.
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