Glossary
Find definitions of technical terms to help you understand our products better
ADI (Available Distributable Items)
ADIs are the distributable sums available for payment of an AT1 coupon. They are usually calculated for the issuing legal entity, based on the non-consolidated accounts. They are calculated in accordance with the applicable national laws on dividend distributions. This is therefore one of the few areas where there is no European harmonisation. The sums are calculated on an annual basis.
AQR
The asset quality review is an in-depth analysis of banks' loan portfolios, conducted by the ECB, EBA and consultants, with the aim of identifying additional provisioning needs. After the AQR, banks must meet the 8% CET1 threshold..
AT1 (Additional Tier 1)
New format of subordinated debt eligible for inclusion in regulatory capital under Basel 3, both for the solvency ratio and (partially) for the leverage ratio. Coupons are discretionary and the nominal value may be reduced either through conversion into shares (Coco), or through a reduction in nominal value, which may subsequently be returned to its original value.
Bail-in
The bail-in mechanism is defined by the BRRD in opposition to a bail-out and refers to the fact that holders of bonds and shareholders must bear losses in order to maintain a bank’s viability without triggering bankruptcy proceedings and without needing to use taxpayers’ money.
Basel 1, 2 and 3
The Basel Committee is an informal committee composed of central bankers and regulators that makes banking regulation proposals. Although its proposals are not immediately applicable, they are later transposed by national legislatures. Basel 1 (Cooke ratio) was the first international mechanism aimed at guaranteeing banks’ solvency, through a simple approach (8% ratio and almost universal risk weightings, except for public institutions and property). Basel 2 introduced weightings based on ratings to more effectively take actual credit risks into account. Basel 3 transformed the regulatory capital rules and made the minimum capital requirements considerably tougher.
CET1 (Common Equity Tier 1)
Within the context of Basel 3, Common Equity Tier 1 is the most solid form of regulatory capital, which chiefly consists of equity (including shares) and undistributed reserves, with some deductions compared with “book equity” (such as deferred tax assets). The CET1 ratio represents the relationship between the Common Equity Tier 1 and the RWA. The CET 1 does not, therefore, include subordinated debt.
RWA (Risk Weighted Assets)
Every position that a bank is exposed to is weighted by a risk weighting, designed to reflect the real risk exposure. Under the standard method, a system based on credit ratings provided by rating agencies is used. Under the internal method, the RWAs are calculated using regulatory formulas, which take into account factors such as the PD for each counterparty and the loss given default (LGD).
SFDR (Sustainable Financial Disclosure Regulation)
The Sustainable Finance Disclosure Regulation (SFDR) is a set of European rules that aims to make investment funds more comparable with each other on sustainability criteria and to increase transparency for end investors. The SFDR focuses on several pre-defined extra-financial indicators to assess the sustainability of the investment process on environmental, social and governance aspects..
SREP (Supervisory Review and Evaluation Process)
The prudential supervisory process allows the supervisor (the national supervisor or the ECB under the SSM) to monitor a bank’s activities and risks and to impose additional capital requirements or a change in the RWA calculations, processes, management, and so on.