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| Asset Covered Securities (ACS) | As defined in the Asset Covered Securities Act 2001:
(a) in relation to a designated or formerly designated mortgage credit institution, means mortgage covered securities issued by the institution, and (b) in relation to a designated or formerly designated public credit institution, means public credit covered securities issued by the institution. |
| Bailout, bailout programme | The EU-IMF financial Assistance Programme put in place in December 2010, when Ireland received financial assistance from the European Union, Euro area Member States, the International Monetary Fund and bilateral loans from the United Kingdom, Denmark and Sweden. The total package agreed was for €85bn with a €17.5bn contribution from Ireland through Exchequer funds and from the National Pension Reserve Fund (NPRF). Among the mechanisms used were the European Financial Stability Mechanism (EFSM) and European Financial Stability Facility (EFSF). Also referred to as the “Troika Bailout”. |
| Banks | As used in this Report, refers to:
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| Bank Asset | A bank asset includes:
1. a credit facility i.e. a loan 2. any security relating to a credit facility, 3. every other right arising directly or indirectly in connection with a credit facility, 4. every other asset owned by a participating institution, and 5. an interest in a bank asset referred to in any of (1) to (4). |
| Bank Guarantee | The guarantee entered into by the Irish Government on 30th September 2008 in respect of the deposits and borrowings of six Irish-owned banks for the period of two years. Legislated under the “Credit Institutions (Financial Support) Act 2008. The banks covered by the guarantee were Allied Irish Bank, Bank of Ireland, Anglo Irish Bank, Irish Life & Permanent Plc, Irish Nationwide Building Society and EBS. Initially Postbank Ireland was also included but this was subsequently deemed unnecessary. Certain subsidiaries of the banks were also covered. |
| Banking Crisis | The period between 2007 and 2010 when Irish banks initially began to report increasing arrears on their loan books and then faced liquidity issues. Also referred to as “the Crisis”. |
| Banking Regulation | A form of government regulation which imposes on banks certain requirements, restrictions and guidelines. The regulatory structure aims to create transparency between banking institutions and their clients. The objectives of banking regulation include prudential (to reduce the level of risk to which bank creditors are exposed), systemic risk reduction (to reduce the risk of disruption resulting from adverse trading conditions for banks causing multiple or major bank failures), and rules about the fair treatment of customers. |
| Banking Supervision | The act of monitoring the financial performance and operations of banks in order to ensure that they are operating safely and soundly and following rules and regulations. |
| Basel Committee on Banking Supervision | A committee of banking supervisory authorities established by the central bank governors of the Group of Ten countries in 1974 with the objective of enhancing understanding of key supervisory issues and improving the quality of banking supervision worldwide. The committee frames guidelines and standards in different areas, such as the international standards on capital adequacy (Basel I, Basel II and Basel III). |
| Basel Process | Refers to the role of the Bank for International Settlements (BIS) in hosting and supporting the work of the international secretariats engaged in standard setting and the pursuit of financial stability. |
| Basel I | The International Convergence of Capital Measurements and Capital Standards published by the Basel Committee in July 1988. This Framework provided the basis for capital adequacy using a limited number of risk weightings (see Risk Weighted Assets). |
| Basel II | This Capital Adequacy Framework, which supersedes Basel I, was issued in June 2004, as implemented by directive 2006/48/EC and Directive 2006/49/EC. The Framework introduced new sensitivity risk weightings and revised supervisory requirements. |
| Basel III | Updated guidelines for capital and banking regulations were published on 16 December 2010, with implementation having commenced on a phased basis with effect from 1 January 2013. |
| Board of Directors, or Board | The governing body of a company or institution generally made up of members of the Executive Management and Non-Executive Directors. |
| Bond | An IOU issued by a borrower to a lender. Bonds can be issued by governments, local authorities or public companies on a fixed or variable interest rate basis. They will generally have a specified maturity date and the interest paid is called the coupon. |
| Bondholders | A person or company that owns a bond. The bond represents a debt that the bond issuer owes to the bondholder. Thus, a bondholder usually has the right to receive principal and interest on this debt. In the event of the bankruptcy of the issuer, bondholders have priority over shareholders in the liquidation of assets. |
| Broker | Intermediate third party who carries out an activity on a commission basis. The sector is colloquially known as the “Broker Market”. |
| Building Society | A financial institution owned by its members as a mutual organisation |
| Bullet Repayment | The final repayment of a loan, which consists of the whole sum borrowed at the start. Any interim repayments are interest-only. |
| Burden-Sharing | The issue of finding an appropriate way to involve the private sector investors in crisis resolution. This would require that investors bear some or all of the losses associated with impaired assets. |
| Buy To Let | Purchase e.g. of a property specifically to rent it out for investment purposes. A buy to let mortgage is a mortgage specifically designed for this purpose. |
| Capital | Made up of equity (proceeds from issue of shares plus retained earnings) and certain debt instruments. There are various definitions, some broader than others, used by regulators and the financial market. |
| Capital – Core Tier 1 | The narrowest sub set within Tier 1 Capital. It only includes “pure” equity capital (e.g. proceeds from issue of shares plus retained earnings) which is “loss absorbing” on a going concern basis. As the market/regulators increasingly focus on the quality of capital, this has become more important. See also Tier 1 Capital and Promissory Note . |
| Central Bank of Ireland, Central Bank | The Central Bank of Ireland is the financial services regulator. The institution was founded under the Central Bank Act 1942 which came into effect on 1 February 1943 when the Currency Commission was renamed the Central Bank of Ireland.In 2003 it was further renamed the Central Bank and Financial Services Authority of Ireland with a new constituent part called the IFSRA. (see Irish Financial Services Regulatory Authority ).The Central Bank Reform Act 2010 created a new single unitary body – the Central Bank of Ireland - responsible for both central banking and financial regulation. The new structure replaced the previous related entities, the Central Bank and the Financial Services Authority of Ireland and the Financial Regulator. The Act commenced on 1 October 2010. |
| Charge | Includes:
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| Consumer Protection | The protection, especially by legal means, of the consumer. It is the policy of utilising legislation to protect consumers against unfair contract terms. |
| Coupon | The interest rate payable to a bondholder over the lifetime of a bond. |
| Covered Institutions | The following credit institutions or subsidiaries of credit institutions operating in Ireland which are covered by the Government’s guarantee Scheme declared by the Minister for Finance on 30 September 2008 and given legislative effect in the Credit Institutions (Financial Support) Act 2008:
1. Allied Irish Banks, p.l.c. and its subsidiaries AIB Mortgage Bank, AIB Bank (CI) Limited, AIB Group (UK) plc and Allied Irish Banks North America Inc. 2. Anglo Irish Bank Corporation plc and its subsidiary Anglo Irish Bank Corporation (International) plc. 3. The Governor and Company of the Bank of Ireland and its subsidiaries Bank of Ireland Mortgage Bank, ICS Building Society and Bank of Ireland (I.O.M.) Limited. 4. EBS Building Society and its subsidiary EBS Mortgage Finance; 5. Irish Life & Permanent plc and its subsidiary Irish Permanent (IOM) Limited. 6. Irish Nationwide Building Society and its subsidiary Irish Nationwide (I.O.M.) Limited. 7. Postbank Ireland Limited. |
| Credit Default Swap (CDS) | A financial contract whereby a buyer of corporate or sovereign debt in the form of bonds attempts to eliminate possible loss arising from default by the issuer of the bonds. |
| Crisis | See Banking Crisis |
| Cross-Sale | Action of selling an additional product or service to a customer who has an existing relationship or a specific other product requirement. An example would be looking to sell home insurance to a customer taking out a mortgage for a house. |
| Debt security | A note, bill, bond or similar financial instrument. |
| Deposit Guarantee Scheme Directive (DGS) | Council Directive 94/19/EC, 30 May 1994 was the original EU Directive covering state guarantees of deposits. It was reviewed in 2005-06 but not revised and then in 2008 proposals were brought to amend the original directive and Directive 2009/14/EC was adopted on March 11 2009 raising coverage levels from €20,000 to €50,000 and €100,000. Ireland has a DGS for €100,000. |
| Director | Under the Companies Act 2014, includes any person occupying the position of director by whatever name called. Under the Taxes Consolidation Act 1997, means—
(i) in relation to a body corporate the affairs of which are managed by a board of directors or similar body, a member of that board or body, (ii) in relation to a body corporate the affairs of which are managed by a single director or similar person, that director or person, and (iii) in relation to a body corporate the affairs of which are managed by the members themselves, a member of the body corporate. |
| Discount | The amount by which the market price of a security is below its par value. The amount of the discount consists of the interest calculated at the interest rate for the length of time that the security has to run. In the case of NAMA, the discount is the difference between the book value of the loan and the purchase price paid by NAMA based on their valuation of the underlying asset using a valuation methodology approved by the European Commission. See also Long-term Economic Value (LEV) . |
| Discount Rate | The rate used to discount future cash flows to their present values. |
| Emergency Liquidity Assistance (ELA) | Euro area credit institutions can receive central bank credit not only through monetary policy operations but exceptionally also through emergency liquidity assistance (ELA). ELA means the provision by a Eurosystem national central bank (NCB) of central bank money and/or any other assistance that may lead to an increase in central bank money to a solvent financial institution, or group of solvent financial institutions. |
| Equity | The residual balance in the assets of a company after deducting all liabilities. It is equivalent to “shareholders’ funds”, including minority interest. Movement through equity is equivalent to movement straight to reserves. |
| Euro | “Euro”, “euro” and “EUR” each means the lawful currency of the member states of the European Union that adopt the single currency in accordance with the EC Treaty. The name of the European single currency adopted by the European Council at its meeting in Madrid on 15 and 16 December 1995. |
| European Central Bank (ECB) | The ECB was established on 1 June 1998 in Frankfurt am Main as the body at the centre of the European System of Central Banks (ESCB) and the Eurosystem. Together with the national central banks of the EU Member States whose currency is the euro, the ECB defines and implements the monetary policy for the euro area. Since the entry into force of the Treaty of Lisbon on 1 December 2009, the ECB has been an EU institution. |
| European Financial Stability Facility (EFSF) | A limited liability company established by the euro area Member States, on an intergovernmental basis, for the purpose of providing loans to euro area countries in financial difficulties. Such financial assistance is subject to strong conditionality in the context of joint EU-IMF programmes. EFSF loans are financed through the issuance of debt securities, guaranteed up to a total of €440 billion by euro area countries on a pro rata basis. |
| European Financial Stability Mechanism (EFSM) | The emergency funding programme reliant upon funds raised on the financial markets and guaranteed by the European Commission using the EU budget as collateral and aimed at preserving financial stability in Europe by providing financial assistance to Member States in economic difficulty. EFSM allows the Commission to raise up to €60 billion on behalf of the EU for lending to EU Member States experiencing, or being threatened with, exceptional circumstances beyond their control. EFSM lending is subject to strong conditionality in the context of joint EU-IMF programmes. |
| Eurozone | The member states of the European Union that have adopted the Euro as their currency. |
| Exchequer | Also known as the Central Fund, the Government Account into which all Government receipts are paid and from which all Government expenditure is funded, unless provided otherwise by law. |
| External Auditor(s) | Independent accounting or auditing firms and individuals hired to carry out an audit. An example is the statutory audit carried out on behalf of the shareholders of a public limited company. |
| Financial Crisis | The period between 2007 and 2012 when the Irish economy collapsed, the structural deficit became evident and the State was unable to meet its financial obligations. |
| Financial Institution(s) | A credit institution that provides financial services for its clients or members, and is licensed by the Central Bank of Ireland. |
| Financial Markets | A market in which people and entities can trade financial assets and liabilities. Money markets and capital markets are parts of financial markets. |
| Financial Regulator | See Regulator. |
| Financial Statements | The annual statements summarising a company’s activities over the last year. They consist of a profit and loss account, balance sheet, statement of total recognised gains and losses and, if required, the cashflow statement, together with supporting notes. The accounts of all the institutions covered under the work of the Inquiry were audited externally. |
| Fiscal Balance | The difference between government total revenue and total expenditure – also called the “actual deficit” and/or “fiscal deficit”. |
| Fiscal Compact Treaty | The Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (Fiscal Compact Treaty). The primary goal of the Treaty is to foster long-term budgetary discipline in the European Union. |
| G20 | An international forum for the Governments and Central Bank Governors from the following 20 economies: Argentina, Australia, Brazil, Canada, China, the European Union, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom, and the United States of America. |
| Gross Domestic Product (GDP) | A measure of the monetary value of final goods and services—that is, those bought by the final user—produced in a country in a given period of time (say a quarter or a year). It counts all of the output generated within the borders of a country but not all of the incomes earned in the economy remain the property of residents (and residents may earn some income abroad). |
| Gross National Product (GNP) | A measure of the income from GDP which remains with domestic residents and it differs from GDP by the net amount of incomes sent to or received from abroad. |
| Group Think | A psychological process that reduces the likelihood of critical views being expressed or heard within institutions, due to a desire for unanimity which overrides the motivation to realistically evaluate alternative courses of action. |
| Guarantee | See Bank Guarantee |
| Haircut | In terms of securities and loans, the difference between the market value of an asset and the purchase price paid. |
| IAS 39 | An accounting standard which sets out the principles for recognising and measuring financial liabilities and some contracts to buy or sell non-financial items. |
| Interest roll-up | The practice whereby any unpaid interest due on an interest payment date is rolled up into the outstanding loan balance where it accrues further interest but does not necessarily place the loan in default. |
| Internal Audit | The role of internal audit is to provide assurance - independent of the business - that an organisation’s risk management, governance and internal control processes are operating effectively. |
| Irish Financial Services Regulatory Authority (IFSRA) | IFSRA was established as a constituent part of the newly named Central Bank and Financial Services Authority of Ireland in May 2003. Its role was to regulate the Irish financial sector. IFSRA was reintegrated under the Central Bank Reform Act 2010. |
| Large Exposure Limits | Core Principle 19 of the Core Principles for Effective Banking Supervision set by the Basel committee on Banking Supervision requires that local laws and bank regulations set prudent limits on large exposures to a single borrower or closely related group. Banks should monitor such positions and report appropriately to their boards and regulators. |
| Leverage | The extent to which an investor or business is using borrowed money or debt to finance assets. An entity with significantly more debt than equity is considered to be highly leveraged. |
| Liability Management Exercises (LME) | Liability management is the process of restructuring outstanding borrowings in order to improve the composition of the public debt, or institutional debt, portfolio. LME is a form of voluntary burden sharing undertaken where securities holders agree to sell back the bond, or debt, or agree to a restructuring, with the issuer at a price below the current perceived market level. |
| Liquidity and Illiquidity | Liquidity is the ability of a credit institution to meet its on and off-balance sheet obligations in a timely manner as they fall due, without incurring excessive cost, while continuing to fund its assets and growth therein1. Illiquidity is the opposite, meaning a lack of liquidity. |
| Liquidity Crisis | In terms of Financial Markets, a period of time where there is an acute shortage of liquidity available to market participants. In 2007/08 this manifested itself in the unwillingness of banks globally to lend to each other thus freezing the money markets. |
| Loan balance | The amount owned by borrowers at the loan valuation date. |
| Loan Loss Provisioning | An expense that is reserved for defaulted loans or credits. It is an amount set aside in the event that the loan defaults. |
| Loan-to-Deposit Ratio (LDR) | The ratio of customer loans to customer deposits. A key measure of a bank’s funding strength. |
| Loan-to-Value ratio (LTV) | The ratio of the loan to the value of the asset purchased. |
| Long-term Economic Value (LEV) | The long-term economic value (or real economic value) of the property or other collateral underlying the loans (the “Property LEV”), defined as “the value, as determined by NAMA, that it can reasonably be expected to attain in a stable financial system when the crisis conditions prevailing are ameliorated and in which a future price or yield of the property is consistent with reasonable expectations having regard to the long-term historical average”. As part of the set-up of NAMA, the Exchequer took a longer-term view on asset prices by acquiring assets from NAMA at their long-term economic value (“LEV)” in return for NAMA bonds. The LEV is made up of the current market value plus a premium where the property has potential for higher value in the future. The premium (where applicable) constitutes a percentage of the current market value. The original price paid for the asset is not taken into account. |
| Macro-prudential supervision | Oversight that focuses on the stability of a financial system as a whole, rather than on its components. The need for macroprudential regulation of the system arises because the actions of individual companies acting prudently within guidelines may collectively result in the system’s instability, for example, if all lenders restrict lending or all companies sell assets at the same time. |
| Management Board | See Board of Directors . |
| Management Information System (“MIS”) | A computerised database of financial information which provides managers, directors and staff with the information, tools and data to enable them to make informed decisions. |
| Market Abuse | Certain types of behaviour such as insider dealing and market manipulation. The Market Abuse Regulation (MAR) will apply across the EU from 3 July 2016. |
| Medium Term Note (MTN) | An instrument used by both banks and corporates to raise money in the public markets for periods greater than one year. |
| Memorandum of Understanding (MOU) | A formal agreement between parties which, although not legally binding, outlines the agreed line(s) of action the parties wish to undertake. |
| Micro-prudential supervision | Focuses on the stability of the component parts of a financial system. The focus of microprudential supervision is the safety and soundness of individual financial institutions. |
| Moral Suasion | An approach adopted where a regulatory authority uses argument and persuasion rather than coercion or legislation to influence the activities of the institutions it regulates. |
| Mutuals | Institutions or companies owned by their members or depositors. This is a term generally associated in Ireland with the Building Societies. |
| National Asset Management Agency (NAMA) | The National Asset Management Agency (NAMA) was established in 2009 as one of a number of initiatives taken by the Government to address the serious crisis in Irish banking which had become increasingly evident over the course of 2008 and early 2009. NAMA acquired 12,000 loans with 60,000 properties as security for land and development and associated loans accounting for 90% of all identified eligible loans from the participating institutions. |
| National Asset Management Agency Act 2009 (NAMA Act) | The National Asset Management Agency Act 2009 (the NAMA Act) was passed into law on 22 November 2009 and came into operation on 21 December 2009. The European Commission gave its approval for the establishment of NAMA on 26 February 2010. The Commission’s approval was required by reference to its State Aid rules. |
| National Recovery Plan (NRP) | Published on 24 November 2010, this plan aimed to provide a blueprint for a return to sustainable growth in the Irish economy. It set out in detail the measures that were to be taken to put the public finances in order. It identified the areas of economic activity which would provide growth and employment in the next phase of Ireland’s economic development. It specified the reforms the Government would implement to accelerate growth in those key sectors. |
| National Treasury Management Agency (NTMA) | A State body which operates with a commercial remit to provide asset and liability management services to Government. |
| Non-performing asset (under NAMA) | For the purposes of the NAMA Act, a bank asset is non-performing if:
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| Nyberg Report | The report of the Commission of Investigation into the Banking Sector in Ireland, March 2011. |
| Oireachtas Committee | A Committee appointed by Dáil Éireann, Seanad Éireann or jointly by both Houses. |
| Opposition | Generally refers to Members of the Dail who are neither part of the Government parties nor Independent TD’s in a voting pact with the government. |
| Own Funds | The amount of equity held by a bank in order to absorb any losses which it may incur. |
| Paper Collateral | The practice whereby the equity pledged by the borrower, when required, takes the form of unrealised paper equity from other transactions. |
| Par Value (of Bonds or Debt) | Face value or nominal value of a debt security or a loan. The price reflecting this is 100. |
| Participating Institutions | A credit institution designated by the Minister for Finance under Section 67 of the NAMA Act 2009. |
| Passported EU Banks | Directive 2007/64/EC on Payment Services in the Internal Market (‘the Payment Services Directive’) sets out the principle of a single authorisation for payment institutions and this provides that a firm may provide the services for which it is authorised in its home member state throughout the EU. This can be done either through the establishment of branch offices or by the engagement of agents in other EU member states or through the free provision of services on a cross border basis (i.e. without establishing a permanent presence). The competent regulatory authorities in Europe responsible for the supervision of payment institutions engage in practical co-operation for the purpose of facilitating the passport notification process for payment institutions. In that regard, a set of supervisory guidelines have been developed to support this process. |
| Pillar Banks | The two main banks resulting from the restructuring of the Irish banking system- AIB and Bank of Ireland. |
| Performing asset | A bank asset that is performing in line with the terms and conditions of its contract or approval. |
| Perpetual Bond | A bond with no maturity date. |
| Preference shares | Shares which provide a dividend that is paid before any dividends are paid to ordinary stock holders, and which takes precedence over ordinary stock in the event of liquidation. Unlike ordinary stock, preference shares pay a fixed dividend, though can similarly avoid paying this dividend (depends on the structure) if it lacks the financial ability to do so. As these instruments are treated as a form of “equity” rather than a debt, ability to pay the coupon (or distribution) is determined by distributable reserves on the balance sheet. |
| Programme for Government | A programme of actions agreed by the parties to government on its formation. |
| Promissory Note | A promissory note provided by the Minister for Finance to a credit institution providing for periodic payments by the Minister to the credit institution, and which constitutes Core Tier 1 Capital of the Credit Institution at the time of issue of the note – see also Capital – Core Tier 1 . |
| Property Crash | Refers to a reduction in property prices following a property bubble, often leaving investors and owners in negative equity. [Also sometimes referred to as “the property market collapse”] |
| Prudential Capital Assessment Review (PCAR) | A prudential capital assessment review undertaken by the Central Bank. |
| Prudential Liquidity Assessment Review (PLAR) | A prudential liquidity assessment review undertaken by the Central Bank. |
| Prudential Regulation | An appropriate legal framework for financial operations to prevent or minimise financial sector problems. |
| Real economic value | The real economic value (or long-term economic value) of the property or other collateral underlying the loans (the “Property LEV”), defined as “the value, as determined by NAMA, that it can reasonably be expected to attain in a stable financial system when the crisis conditions prevailing are ameliorated and in which a future price or yield of the property is consistent with reasonable expectations having regard to the long-term historical average”. |
| Recapitalisation | When a legal entity changes its capital structure (the proportion of equity to debt) with the aim of improving its debt/equity ratio. |
| Regulator | An institution which supervises and controls the financial system including the institutions and the markets themselves. Also referred to as “the Financial Regulator (FR)” and can be used to refer to an individual who holds the post of Financial Regulator. |
| Regulatory Capital | The amount of capital a bank or other financial institution is required to hold by its financial regulator. This is usually expressed as a capital adequacy ratio of equity that must be held as a percentage of riskweighted assets. (also known as capital requirement or capital adequacy) |
| Risk Weighted Assets (RWA) | Loans and equivalent assets which have been adjusted for risk. |
| Scoping Paper | Generally refers to a paper outlining the issues and environment surrounding a particular task or subject. In this Report, refers to the Financial Stability Scoping Paper of January 2008 – the Bank Guarantee Issue. The purpose of this paper was to identify significant issues relating to the options available to the Irish authorities in the case of a systemic threat to financial stability, as well as consider any issues regarding the structures currently in place to oversee financial stability planning arrangements and also to manage a financial crisis. It examined the legal framework within which any crisis management operations must take place and any possible questions regarding the legal powers available to the Minister and the Central Bank and Financial Services Authority of Ireland (CBFSAI). |
| Sectoral Concentration Limits | Limits imposed by both institutions and the Central Bank on the proportion of exposure that any bank should have in its lending portfolio to specific sectors of the economy or industries. Generally expressed as a percentage of own funds set as a cap on such lending. |
| Secured/Unsecured Debt | Secured debt is a loan where a specific pledge on assets or some form of collateral is in place enabling the lender to take ownership of the collateral should the borrower default. An example of secured debt would be a mortgage. Unsecured debt is a loan not secured by an underlying asset or collateral. It is the opposite of secured debt. In the case of unsecured debt, a lender loans money without the security that an underlying asset provides. For this reason, unsecured debt carries more risk for the lender, which in turn makes the loan more expensive. |
| Securitisation | Pooling of assets such as mortgages and other debt into securities that are sliced up and sold to different types of investors. Securitisation allows individual mortgages to be pooled together into large bundles, the loans are then restructured and credit enhanced to be given a higher debt rating by the ratings agencies and then investors. Lenders pass on loans quickly, giving them few incentives to ensure they are repaid. Limited information on underlying assets makes them illiquid and hard to value. |
| Security | Includes
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| Senior Debt/Bonds | A Debt Security or Bond which has a prior and superior claim on the issuer’s assets and income over other bonds issued by the same entity which are deemed to be Junior or Subordinated to it. Senior bonds can be issued on a secured or unsecured basis with the former having some form of pledge on specific assets of the issuer. |
| Short Selling | A situation where an investor sells a security, shares or bonds, which they do not currently own. They tend to hold the belief that the price of this security will fall and that they will be able to buy it at a lower price. Generally in such a situation the seller knows that they will be able to borrow the security elsewhere for a period of time to enable them to fulfil their initial sale and then buy the security at a lower level to return to whoever lends it to them at an agreed future date. Where the seller is not sure of their ability to borrow the security they are undertaking a “Naked Short” which a number of Governments have banned on occasion. |
| Single Supervisory Mechanism (SSM) | The system of financial supervision composed by the ECB and national competent authorities of participating Member States |
| SME | A small or medium sized enterprise. Under the standard EU definition, businesses are classed as an SME if they employ fewer than 250 persons and have an annual turnover not exceeding €50 million, and/or an annual balance sheet total not exceeding €43 million. |
| Social Partnership | The process used to negotiate and achieve consensus on a range of social and economic policy issues. The process which began in 1987 was initially limited to the Government, Business, Trade Unions and Farmers and later included the Community and Voluntary sectors. |
| Solicitors’ Undertaking | Any unequivocal declaration of intention addressed to a person who reasonably places reliance on it, which is made by a Solicitor in the course of his or her practice, either personally or by a member of the Solicitor’s staff, whereby the Solicitor, or in the case of a member of his or her staff, his or her employer, becomes personally bound. (Regulation 2 S.I. No. 366 of 2010, Solicitors ( Professional Practice, Conduct and Discipline – Commercial Property Transactions) Regulations, 2010 ) |
| Sovereign Debt | Also known as government debt, public debt or national debt. This is the debt owed by central government. The sovereign debt crisis relates to the difficulty or impossibility for some countries to repay or refinance their government debt without the assistance of third parties. |
| Sovereign Debt Crisis | The difficulty or impossibility for some countries to repay or re-finance their government debt without the assistance of third parties. |
| Stability and Growth Pact (SGP) | The stability and growth pact (SGP) forms part of the rules and procedures for fiscal policy of the Member States of the Euro area. The SGP was agreed at the EU Summit in Dublin in December 1996. It built on the convergence criteria and lays out the rules for budgetary and fiscal discipline of the Member States. The focus of the SGP is to maintain the fiscal aspects of the converge criteria, namely the 3% deficit ratio and 60% of GDP public debt ratio.
The “Six pack” reforms (2010-2011) The “Two Pack” are two regulations that harmonised the budgetary timeline and introduced the requirement for Member States to submit a draft budgetary plan by 15 October each year as well as introducing a requirement that fiscal planning must be based on macroeconomic projections that are produced or endorsed by an independent body (assigned to Irish Fiscal Advisory Council). |
| Statement of Affairs | A summary of a company’s assets and liabilities. It states the net book value and amount expected to realise at the date of Insolvency of the business. Accompanying the balance sheet is a list of creditors and shareholders. |
| Strategic Development Zone (SDZs) | SDZs are designated by the Government. Special rules apply to planning and development in an SDZ, making it significantly easier to obtain planning permission for development which is consistent with a Planning Scheme in force for an SDZ, and prohibit planning permission for development which is not consistent with such a Scheme. There is no right of appeal to An Bord Pleanála against a decision, so the process of application is quicker and more certain. |
| Stress Testing | A simulation designed to assess the ability of a given financial institution to deal with an economic crisis. Stress tests are carried out with the objective of seeing how robust a financial institution is under different conditions. |
| Structural Deficit | The Government deficit after the factoring out of the current cyclical position (surplus or shortfall). The actual deficit differs from the structural deficit due to “cyclical factors” reflecting the fact that the economy is not operating at its equilibrium or due to one-off measures2. |
| Subordinated Bonds/Debt | Debts, bonds or claims that have a lower status than other debts or claims and are subordinate. Thus they are more risky for the lender and typically have a higher rate of return than senior debt. In some cases subordinated debt (both tier 1 and tier 2) has been bought back by the banks at a significant discount thus leading these bondholders to take a substantial loss relative to the face value of the bonds. |
| Tier 1 Capital | A key measure of a bank’s financial strength from a regulator’s point of view. Tier 1 Capital consists largely of shareholders’ equity – the amount paid up to originally purchase the shares of the Bank, retained profits, and other qualifying Tier 1 capital securities. See also Capital – Core Tier 1 . |
| Tier 2 Capital | A junior or subordinated form of capital. Divided into Upper Tier 2 (no maturity date) and Lower Tier 2 (have a maturity date) capital instruments. |
| Tracker Mortgage | Mortgages where the interest rate attaching to them is set at a fixed percentage ‘margin’ above the European Central Bank Base Rate. The interest rate on such a mortgage “tracks” the official ECB rate and only changes when that does. |
| Troika Bailout | See Bailout . |
| Unsecured/Secured Debt | See Secured/Unsecured Debt . |
| Wholesale Deposits | Large deposits obtained by licenced credit institutions from other banks, financial institutions or large corporations. |
| Wholesale Funding | Any bank funding that comes from the capital markets (be it short duration or long term in the form of bonds) that is not in the form of a bank deposit. |
| Wholesale Financial Markets | The markets where funding and capital are sourced by financial institutions and corporates. The wholesale market for short-term loans and debt instruments, generally less than one year, is called the Money Market. |
Appendix 12 Footnotes
1. UK Financial Regulator 2006.
2. Definition from ESRI Special Article The Structural Balance for Ireland, Authors: Adele Bergin and John FitzGerald, April 11, 2014, Quarterly Economic Commentary.
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