02. Regulatory Framework

Question 1

What is Financial regulation?

Answer 1

Set of rules and guidelines to ensure that financial system operates in a safe and sound manner.

Question 2

Why do we need financial stability?

Answer 2

1) Maintain financial stability: financial system function effectively even in times of stress.
2) Protect investors and consumers: Require financial institutions to disclose information about their products, sett minimum capital requirement. This wat, consumers can make informed desicions and not be taken advantage of.
3) Prevent financial crimes.
4) PRomote competition: Give everybody same rules and to give all who wants to be in condition to be a competitor

Question 3

We have 4 main forms which makes possible to regulate. Which ones??

Answer 3

1) Upper level: Laws.
2) Second Level: Regulations. (more specific to banks)
3) Codes of conduct (internal)
4) Supervisory Practices

Question 4

Basle Comitee?

Answer 4

set in 1974 by Central Banks of G10. Global reference point for defining rules on supervision of banks.
-Monitors possible exisitng or emerging risks
- Foster common risk culture.
-Establishes globl standard of regulation and supervision on banks.
-Maneges regulatory gaps between geographical areas.

Question 5

Describe in a few words Basels I, II III

Answer 5

-Basel I: Credit and market risk
-Basel II: Operational risk.
-Basel III: Liquity risk.

Question 6

What are the pillars of the Basel? (3)

Answer 6

1) How much capital and of what quality the bank must have
2) Banks must have periodically self-assessment of capital and liquity adecuacy.
3) Relationship between the Bank and market/financial community.

Question 7

Regulation operates in two levels:

Answer 7

-Micro- prudential (each bank does its own analyses). Making banks to do stress-test simulations. It checks the ability of banks to face the stress.
-Macro – prudential (how operates in more general/systematic level).

Question 8

Name the 3 pillars of European System of Financial Supervision:

Answer 8

• SSM (Single Supervisory Mechanism): Supervises largest and most prominent banks in Europe.
• SRM (Single Resolution Mechanism): recovery and resolution of trouble banks.
• EDIS (European Insurance Deposit Scheme): related to protecting the depositors.