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A bill of exchange or negotiable instrument drawn by the borrower for payment at maturity and accepted by a bank.  The acceptance constitutes a guarantee of payment by the bank and can be traded in the money market. The bank earns a "stamping fee" for providing this guarantee.


Advanced Internal Ratings Based Approach (AIRS)

A measurement of credit risk under Basel II that uses risk weights determined from internal risk parameters, including probability of default, loss given default and exposure at default.


Allowance for credit losses

The amount deemed adequate by management to absorb identified credit losses as well as losses that have been incurred but are not yet identifiable as at the balance sheet date.  This allowance is established to cover the lending portfolio including loans, acceptances, guarantees, letters of credit, and unfunded commitments.  The allowance is increased by the provision for credit losses, which is charged to income and decreased by the amount of write-offs, net of recoveries in the period.


Alt-A assets

A term used in the U.S. to describe assets (mainly mortgages) with a borrower risk profile between the prime and subprime catego­rizations.  Categorization of assets as Alt-A (as opposed to prime) varies, such as limited verification or documentation of borrowers’ income or a limited credit history.


Asset-backed securities (ABS)

Securities created through the securitization of a pool of assets, for example auto loans or credit card loans.


Assets-to-capital multiple

Total assets plus specified off-balance sheet items, as defined by OSFI, divided by total regulatory capital.


Assets under administration (AUA)

Assets administered by us, which are benefi­cially owned by clients, unless otherwise noted.  Services provided in respect of assets under administration are of an administrative nature, including safekeeping, collecting investment income, settling purchase and sale transactions, and record keeping.


Assets under management (AUM)

Assets managed, which are beneficially owned by clients, unless otherwise noted.  Services provided in respect of assets under management include the selection of investments and the provision of investment advice.


Auction rate securities (ARS)

Securities issued through variable interest entity (VIE) trusts that hold long-term assets funded with long-term debt with an interest rate reset every week to 35 days via auctions managed by participating financial institutions. In the U.S., these securities are issued by sponsors such as municipalities, student loan authorities or other sponsors through bank-managed auctions


Basis point (bp)

One one-hundredth of a percentage point (.01%).


Canadian GAAP

Canadian generally accepted accounting principles.


Capital adequacy

The level of capital that is sufficient to underpin risk and accommodate potential unexpected increases in risk within specified regulatory targets while maintaining our business plans.  This includes risks for which minimum regulatory capital requirements may not be specified.


Cash capital position

Measures the extent to which illiquid (long­-term) assets are funded by short-term liabilities and represents a formula-based measure of mismatches in effective maturity between assets and liabilities including both comparative and directional structural liquidity risk.



Assets pledged as security for a loan or other obligation.  Collateral can take many forms, such as cash, highly rated securities, property, inventory, equipment and receivables.


Collateralized debt obligation (CDO)

Securities with multiple tranches that are issued by special purpose entities and collateralized by debt obligations including bonds and loans.  Each tranche offers a varying degree of risk and return so as to meet investor demand.


Collateralized loan obligation (CLO)

Securities that are backed by a pool of commercial or personal loans structured so that there are several classes of bondholders with varying maturities, called tranches.


Commercial mortgage-backed securities (CMBS)

Securities created through the securitization of commercial mortgages.


Commitments to extend credit

Unutilized amount of credit facilities available to Clients either in the form of loans, bankers’ acceptances and other on-balance sheet, financing, or through off-balance sheet products such as guarantees and letters of credit.


Contract for difference (CFD)

A contract between two parties in which one party pays the other in cash for the difference between the current value of an asset and its value at contract time.


Covered bonds

Full recourse on-balance sheet obligations issued by banks and credit institutions that are also fully collateralized by assets over which investors enjoy priority claim in the event of an issuer's insolvency.


Credit default swaps (CDS)

A derivative contract that provides the purchaser with a one-time payment should the referenced entity/entities default (or a similar triggering event occur).



A contract between two parties, which requires little or no initial investment and where payments between the parties are dependent upon the movements in price of an underlying instrument, index or financial rate.  Examples of derivatives include swaps, options, forward rate agreements and futures.  The notional amount of the derivative is the contract amount used as a reference point to calculate the payments to be exchanged between the two parties, and the notional amount itself is generally not exchanged by the parties.


Dividend payout ratio

Common dividends as a percentage of net income after preferred share dividends.


Dividend yield

Dividends per common share divided by the average of the high and low share prices in the relevant Period.

Documentary and commercial letters of credit


Written undertakings by a bank on behalf of its client (typically an importer), authorizing a third party (typically an exporter) to draw drafts on the bank up to a stipulated amount under specific terms and conditions: Such under­takings are established for the purpose of facilitating international trade.


Earnings per share (EPS), basic

Calculated as net income less preferred share dividends divided by the average number of shares outstanding.


Earnings per Share (EPS), diluted

Calculated as net income less preferred share dividends divided by the average number of shares outstanding adjusted for the dilutive effects of stock options and other convertible securities.


Economic value of equity risk

Economic value of Equity (EVE) exposure to interest rate changes.  It measures the change in the NPV of assets, liabilities and off-balance sheet items for a given change in interest rates; it is an economic measure usually based on discounted cash flow, methodology; and a more comprehensive measure that incorporates all cash flows regardless of the period.


Electronic trading

The use of market-leading technology to provide trade execution, multiple market access and inter-market spreading of trades.  Platform Capabilities include the trading of multiple products through a single user interface, and may use algorithms to provide more efficient order management, price construction, fill order and execution of trades.



A group of 17 European Union member states that have adopted the euro currency as their sole legal tender, which include Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.


Fair value

The amount of consideration that would be agreed upon in an arm's length transaction between knowledgeable, willing parties who are under no compulsion to act.



A group of finance ministers and central bank governors from 20 major economies including the European Union. The G20 meets periodi­cally and studies, reviews and promotes discussion on policy issues relating to interna­tional financial stability.


Guarantees and standby letters of credit

These primarily represent irrevocable assurances that a bank will make payments in the event that its client cannot meet its financial obligations to third parties.  Certain other guarantees, such as bid and performance bonds, represent non-financial undertakings.


Harmonized sales tax (HST)

The HST is a Canadian sales tax that replaced the federal goods and services tax (GST) and the provincial sales tax (PST) in five of the ten Canadian provinces: British Columbia, Ontario, New Brunswick, Newfoundland and Labrador, and Nova Scotia.  It is charged on most goods and services purchased in those provinces.



A risk management technique used to mitigate exposure from market, interest rate or foreign currency exchange risk arising from normal banking operations. The elimination or reduction of such exposure is accomplished by establishing offsetting positions.  For example, assets denominated in foreign currencies can be offset with liabilities in the same currencies or through the use of foreign exchange hedging instruments such as futures, options or foreign exchange contracts.


Hedge funds

A type of investment fund, marketed to accredited high net worth investors, that is subject to limited regulation and restrictions on its investments compared to retail mutual funds, and that often utilize aggressive strat­egies such as selling short, leverage, program trading, swaps, arbitrage and derivatives.


Home equity financing

This is comprised of residential mortgages and secured personal loans whereby the borrower pledges real estate as collateral.


International Financial Reporting Standards

IFRS are principles-based Standards, inter­pretations and the framework adopted by the International Accounting Standards Board.


Impaired loans

Loans are classified as impaired when there has been a deterioration of credit quality to the extent that management no longer has reasonable assurance of timely collection of the full amount of principal and interest in accordance with the contractual terms of the loan agreement.  Credit card balances are not classified as impaired as they are directly written off after payments are 180 days past due.


Monoline insurer

Insurance companies that specialize in financial guaranty insurance products, predominantly for the municipal, bond market in the U.S. and structured finance products, such as CDOs.


Net interest income

The difference between what is earned on assets such as loans and securities and what is paid on liabilities such as deposits and subordinated debentures


Net interest margin (average assets)

Net interest income as a percentage of total average assets


Non-bank sponsored asset-backed commercial paper

A short-term promissory note issued primarily by special purpose securitization vehicles that hold loans or other assets and are not sponsored by banks


Normal course issuer bid (NCIB)

A program for the repurchase of shares (issuer) for cancellation through a stock exchange that is subject to the various rules of the relevant stock exchange and securities commission.


Notional amount

The contract amount used as a reference point to calculate payments for derivatives.


Off-balance sheet financial instruments

A variety of arrangements offered to clients, which include credit derivatives, written put options; backstop liquidity facilities, stable value products, financial standby letters of credit, performance guarantees, credit enhancements, mortgage loans sold with recourse, commitments to extend credit, securities lending, documentary and commercial letters of credit, note issuances and revolving underwriting facilities, securities lending indemnifications and indemnifications.


Office of the Superintendent of Financial Institutions Canada (OSFI)

The primary regulator of federally chartered financial institutions and federally Administered pension plans in Canada. OSFI's mission is to safeguard policyholders, depositors and pension plan members from undue loss.


Operating leverage

The difference between the business revenue growth rate and non-interest expense growth rate.



A contract or a provision of a contract that gives one party (the option holder) the right, but not the obligation, to perform a specified trans­action with another party (the option issuer or option writer) according to specified terms.


Prepaid pension benefit cost

The cumulative excess of amounts contributed to a pension fund over the amounts recorded as pension expense.


Primary dealer

A formal designation provided to a bank or securities broker-dealer permitted to trade directly with a country's central bank.  Primary dealers participate in open market operations, act as market-makers of government debt and provide market information and analysis to assist with monetary policy.


Provision for credit losses

The amount charged to income necessary to bring the allowance for credit losses to a level determined appropriate by management.  This includes both specific and general provisions.


Repurchase agreements

These involve the sale of securities for cash and the simultaneous repurchase of the securities for value at a later date.  These transactions normally do not constitute economic sales and therefore are treated as collateralized financing transactions.


Residential mortgage-backed securities (RMBS)

Securities created through the securitization of residential mortgage loans.


Return on common equity (ROE)

Net income less preferred share dividends, expressed as a percentage of average common equity.


Reverse repurchase agreements

Involve the purchase of securities for cash and the simultaneous sale of the securities for value at a later date. These transactions normally do not constitute economic sales and therefore are treated as collateralized financing transactions.



Financial institutions face a number of different risks that expose them to possible losses.  These risks include credit risk, market risk, operational risk, liquidity and funding risk, reputation risk, regulatory and legal risk, insurance risk and environmental risk.


Risk-weighted assets (RWA)

Assets adjusted by a regulatory risk-weight factor to reflect the riskiness of on and off-balance sheet exposures. Certain assets are not weighted, but deducted from capital.  The calculation is defined by guidelines issued by OSFI based on Basel II, effective November 1, 2007.


Securities sold short

A transaction in which the seller sells securities and then borrows the securities in order to deliver them to the purchaser upon settlement.  At a later date, the seller buys identical securities in the market to replace the borrowed securities.



The process by which various financial assets are packaged into newly issued securities backed by these assets.


Special purpose entities (SPEs)

Entities that are typically organized for a single discrete purpose, have a limited life and serve to legally isolate the financial assets held by the SPE from the selling organization.  SPEs are principally used to securitize financial and other assets in order to obtain access to funding, to mitigate credit risk and to manage capital


Structured investment vehicles

Managed investment vehicle that holds mainly highly rated asset-backed securities and funds itself using the short-term commercial paper market as well as the medium-term note (MTN) market.


Subprime loans

Subprime lending is the practice of making loans to borrowers who do not qualify for the best market interest rates because of their deficient credit history.  Subprime lending carries more risk for lenders due to the combination of higher interest rates for the borrowers, poorer credit histories, and adverse financial situations usually associated with subprime applicants.


Synthetic securitization

The transfer of risks relating to selected elements of financial assets to unaffiliated third parties through, the use of certain financial instruments such as credit default swaps and guarantees, while retaining legal ownership over the financial assets


Taxable equivalent basis (teb)

Income from certain specified tax advantaged sources is increased to a level that would make it comparable to income from taxable sources.  There is an offsetting adjustment in the tax provision, thereby generating the same after-tax net income.


Tier 1 capital and Tier 1 capital ratio

Tier 1 capital comprises the more permanent components of capital and consists primarily of common shareholders' equity, non-cumulative preferred shares, the majority of which do not have conversion features into common shares, and the eligible amount of innovative capital instruments.  In addition, goodwill and other items as prescribed by OSFI are deducted from Tier 1 capital to determine adjusted net Tier 1 capital.  The Tier 1 capital ratio is calculated by dividing the adjusted net Tier 1 capital by risk-weighted assets.


Tier 2 capital

Tier 2 capital consists mainly of subordinated debentures, trust subordinated notes, the eligible amount of innovative capital instru­ments that could not be included in Tier 1 capital, and an eligible portion of the total general allowance for credit losses, less OSFI ­prescribed deductions.


Total capital and total capital ratio

Total capital is defined as the total of net Tier 1 and Tier 2 capital.  The total capital ratio is calculated by dividing total capital by risk-weighted assets.



A security class created whereby the risks and returns associated with a pool of assets are packaged into several classes of securities offering different risk and return profiles from those of the underlying asset pool.  Tranches are typically rated by ratings agencies, and reflect both the credit quality of underlying collateral as well as the level of protection based on the tranches' relative subordination.



U.S. generally accepted accounting principles.


Value-at-Risk (VaR)

A generally accepted risk-measurement concept that uses statistical models based on historical information to estimate within a given level of confidence the maximum loss in market value we would experience in our trading portfolio from an adverse one-day movement in market rates and prices.


Variable interest entity (VIE)

An entity that either does not have sufficient equity at risk to finance its activities without additional subordinated financial support, or where the holders of the equity at risk lack the characteristics of a controlling financial interest.



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