Basic indicator approach

Under this approach, banks must hold capital to cover operational risk equal to 15% of the average over three years of the sum of net annual interest income and net annual non-interest income.

BIS ratio

A solvency ratio for banks expressing specified capital components as a percentage of the risk-weighted assets. The minimum ratio of 8% is set by the Bank for International Settlements (BIS).

Concentration risk

The risk to capital, result or continuity due to lack of diversification in portfolio composition.

Credit risk

The risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss.

Currency risk

The risk to capital, result or continuity as a result of movements or volatility in exchange rates.

Duration

The weighted average maturity of cash flows, where the weighting of each cash flow is determined by its relative magnitude.

Fair value

The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction.

Interest-rate risk

The risk to capital, result or continuity as a result of movements or volatility in interest rates.

Liquidity risk

The risk that in the short term a company will encounter difficulty in raising funds to meet its financial obligations.

Market risk

The risk to capital, result or continuity as a result of movements or volatility in market prices.

Operational risk

The risk to capital, result or continuity of ineffective or insufficiently effective process configuration or execution or external events.

Own funds

Financial resources which, according to the regulator’s rules, qualify for inclusion in calculating Tier 1, Tier 2 and Tier 3 capital.

Risk-weighted assets

Assets weighted for credit risk based on the weighting percentage used in regular reporting to De Nederlandsche Bank.

Share premium

The paid-in capital over and above the nominal value of the shares.

Solvency

A measure of the ability of a company to meet its financial commitments. This is expressed as a ratio (solvency ratio).

Solvency ratio

The solvency ratio expresses as a percentage the relationship between the available capital and the required capital.

Standardised approach

A method used in Basel II to measure a bank’s operational risk and credit risk, in which the risk weighting is prescribed by the regulator using a standardised approach.

Stress test

A test used to analyse the financial resilience of a financial institution in scenarios with significant but realistic changes in parameters that are highly relevant to the institution, such as macroeconomic changes, crises in financial markets, changes in legislation and regulations, and variations in liquidity in money and capital markets.

Tier 1 capital

Also known as core capital, Tier 1 capital comprises the paid-up share capital, all the reserves except revaluation reserves, retained earnings, minority interests and innovative Tier 1 instruments as defined by De Nederlandsche Bank. Tier 1 capital does not include goodwill or intangible assets, with the exception of software (both bought-in and developed in-house) for own use, or equity interests of more than 10% in financial institutions.