Annual report 2008
Binck Bank
Definitions and ratios
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% was set by the
Bank for International Settlements (BIS).
Concentration risk
The risk to capital, result or continuity due to a skewed portfolio mix.
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 due to changes in the level or volatility of
foreign 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 due to changes in the level or volatility of
market interest rates.
Liquidity risk
The risk that an enterprise will encounter difficulty in raising funds to meet
commitments associated with financial instruments.
Market risk
The risk to capital, result or continuity as a result of changes in market prices
whether those changes are caused by factors specific to the individual security
or its issuer or factors affecting all securities traded in the market.
Operational risk
The risk to capital, results 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, using the weighting percentage used in regular
reporting to De Nederlandsche Bank.
Share premium reserve
The paid-in capital over and above the nominal value of the shares.
Solvency
The availability of cash over the longer term to meet financial commitments as
they fall due. The extent to which an entity is able to meet its liabilities 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.
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 macro-economic changes, crises on financial
markets, changes in legislation and regulations and variations in liquidity on
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, unappropriated profits, minority
interests and innovative Tier 1 instruments as defined by De Nederlandsche
Bank. Tier 1 capital does not include goodwill, intangible assets except software
(both bought-in and developed in-house) for own use and equity interests of
more than 10% in financial institutions.
Definitions and ratios
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% was set by the
Bank for International Settlements (BIS).
Concentration risk
The risk to capital, result or continuity due to a skewed portfolio mix.
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 due to changes in the level or volatility of
foreign 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 due to changes in the level or volatility of
market interest rates.
Liquidity risk
The risk that an enterprise will encounter difficulty in raising funds to meet
commitments associated with financial instruments.
Market risk
The risk to capital, result or continuity as a result of changes in market prices
whether those changes are caused by factors specific to the individual security
or its issuer or factors affecting all securities traded in the market.
Operational risk
The risk to capital, results 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, using the weighting percentage used in regular
reporting to De Nederlandsche Bank.
Share premium reserve
The paid-in capital over and above the nominal value of the shares.
Solvency
The availability of cash over the longer term to meet financial commitments as
they fall due. The extent to which an entity is able to meet its liabilities 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.
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 macro-economic changes, crises on financial
markets, changes in legislation and regulations and variations in liquidity on
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, unappropriated profits, minority
interests and innovative Tier 1 instruments as defined by De Nederlandsche
Bank. Tier 1 capital does not include goodwill, intangible assets except software
(both bought-in and developed in-house) for own use and equity interests of
more than 10% in financial institutions.