Glossary

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Liabilities

Liabilities

What the company owes, its debt and unpaid bills – liabilities can be classified as short-term (payable within one year) or long-term (payable after one year).

Minimum Requirement for own funds and Eligible Liabilities (MREL)

Minimum Requirement for own funds and Eligible Liabilities (MREL) is a term used in EU legislation for the loss absorbing capital (LAC) of certain financial institutions. MREL figure comprises the total of a bank’s loss absorption amount and recapitalisation amount. The MREL amounts is the amount of that a bank must have on its balance sheet […]

Current liabilities

Current liabilities is an accounting term used describe the short-term debts of a business that fall due to be paid within the next year. It includes creditors as well as things like bank overdrafts, short-term loans and tax liabilities.

Long-term liabilities

Amounts that are owed that have to be paid after one year

Short-term liabilities

Amounts that are owed that have to be paid within one year

Book Value

Book value is the sum of the amounts of all the line items in the shareholders’ equity section on a company’s balance sheet. You can also calculate book value by subtracting a business’s total liabilities from its total assets.

LDI

LDI is an acronym of Liability Driven Investing. The idea is that pension schemes use LDI to match their investments with their long-term pension liabilities. Many went about that by buying leveraged portfolios of government bonds. Famously, in September 2023, the Liz Truss/Kwasi Kwarteng budget crashed the UK government bond market and LDI magnified the […]

CVA

CVA is an acronym for Company Voluntary Arrangement. It is a mechanism whereby an insolvent company (one with more liabilities than assets) can come to an arrangement with its creditors (the people it owes money to). As long as 75% of the creditors agree to a plan, the rest of the creditors are bound to go […]

Basel IV

Basel IV describes the changes agreed in 2016 and 2017 to the international banking standards known as the Basel Accords. Basel IV introduces changes that limit the reduction in capital that can result from banks’ use of internal models under the Internal Ratings-Based* approach. These include: A standardised floor, so that the capital requirement will always […]

TLAC or T-LAC

TLAC or T-LAC – TLAC is an abbreviation for total loss absorbing capacity used by the Financial Stability Board (FSB). It can also be referred to as T-LAC. It describes the debt or capital available to absorb losses in (mostly) banks. TLAC is closely related to (but different from) the term Minimum Requirement for Own Funds […]

MREL

MREL is the abbreviation for Minimum Requirement for own funds and Eligible Liabilities.