1.1 An Overview of the Financial System Flashcards
Types of financial institutions:
- Banks
- Building societies
- Credit unions
- Friendly societies
What does financial intermediation involve?
Taking in money and using it to provide financial services and to make a profit
What are the two types of banking?
- Retail business
- Investment business
What is investment business also known as?
Wholesale business
What are banks that carry out both types of business known as?
Universal banks
What do retail banks do?
Provide services to individuals and small and medium-sized businesses.
What are the different headings that retail bank services can be grouped under?
- Money transmission
- Savings and investment
- Lending
- Insurance
What are the main retail banking firms?
- RBS Group
- HSBC
- Barclays
- Lloyds Banking Group
- Standard Chartered
Examples of smaller institutions:
- Co-op Banking Group
- Virgin Bank
What do investment banks do?
They raise funds on the financial markets, which they then use to provide special services to large corporations and governments
Activities of investment banks:
- Lend large amounts to companies
- Help companies raise funds from investors by issuing shares on the markets
- Advise companies on mergers and takeovers
- Deal in the financial market to make profits for themselves
What type of banking do UK banks engage in?
Both
Examples of firms that only offer investment banking:
- Goldman Sachs
- JP Morgan Chase
Building societies are mutual organisations, what does this mean?
- They are not PLC’s and do not have share capital
Who are building societies owned by?
Their members
What is done with surplus in a building society?
It is retained within the business for the benefit of the members
Providers of insurance can be divided into what categories?
- Individual insurance companies
- Lloyds specialist insurance market
Are most insurance companies corporates or mutual?
Mutual
What is the structure of the Lloyds insurance market?
It is made up of syndicates (groups) of members who employ specialists known as ‘underwriters’ to accept insurance risk and to divide it out between them.
What are friendly socieities?
They are mutual organisations that offer members a wide range of financial products
How can someone be eligible to become a member of a credit union?
They must meet the common bond criteria that is has laid down e.g. live or work in a certain area
Functions of the Bank of England:
- Achieve monetary stability
- Achieve financial stability
- Acting as a banker to the banks
- Issuing UK banknotes
- Managing the UK’s gold and foreign exchange services
What does the MPC do?
They raise and lower interest rates in order to achieve stable prices and confidence in the currency.
What is the Bank of England a member of?
The European System of Central Banks
The three financial regulatory bodies in the UK are:
- FPC
- PRA
- FCA
What is the FPC responsible for?
The survival and stability of the financial system
What is the main objective of the FPC?
- Identifying and taking action to remove risks
- Supporting the economic policy of the Government
Is the FPC part of the Bank of England?
Yes
What is the PRA responsible for?
The regulation and supervision of individual financial services providers
Main objectives of the PRA:
- Promote safety and soundness of financial services providers
- Secure protection for insurance policyholders
- Facilitate effective competition in financial services
Is the PRA part of the Bank of England?
Yes
Is the FCA part of the Bank of England?
No
What is the aim of the FCA?
To ensure that financial markets work well for consumers
What are the objectives of the FCA?
- Secure protection for consumers
- Protect and enhance the integrity of the UK financial system
- Promote effective competition
What is the HM Treasury?
The UK’s economic and finance ministry
What is the HM Treasury responsible for?
Lawmaking and forming the framework of regulation
What is the MAS?
An independent service that offers free and unbiased information to the public
What is the aim of the MAS?
To enhance people’s financial knowledge
What are the responsibilities of the CMA?
- Investigate mergers
- Prosecute businesses that operate cartels
- Ensure companies to not operate in a way that makes it difficult for consumers to choose between suppliers
What does the FOS do?
Settles complaints that customers and financial businesses are unable to resolve for themselves
What is the FSCS?
A fund that can pay compensation to customers if an institution is unable to pay its debts
What is the limit of compensation under the FSCS?
100% if savings deposits up to £85,000 per person per firm
What is the British Bankers’ Association?
The leading association for the UK banking sector
What is the Building Societies Association?
The trade association for UK building societies
What is the Association of British Insurers?
The trade body for insurance companies in the UK
Is the FPC part of the Bank of England?
Yes
What financial products do building societies specialise in?
- Current and savings accounts
- Mortgage loans
The UK Government is a shareholder in which two banks?
- RBS Group
- Lloyds Banking Group
Sustainable financial system definition
One that comprises of institutions that behave wisely
Which is riskier out of retail banking and wholesale banking?
Wholesale banking
When was the RBS Group formed?
When Royal Bank of Scotland acquired NatWest
What providers did Lloyds Bank buy to become Lloyds Banking Group?
- Trustee Savings Bank
- Scottish Widows
- HBOS
What is the largest building society in the UK?
Nationwide
What is happening to the number of building societies?
They are falling
Why were building societies affected by the financial crisis?
Because of their investment in property and exposure to falling property prices
Legislative changes in the UK mean that credit unions can now do what?
Extend their services to new groups, including community groups and businesses
What are the main products offered by credit unions?
- Savings accounts
- Loans
What is the membership organisation for UK credit unions?
The Association of British Credit Unions Ltd
When were friendly societies first formed?
When people began to group together to contribute to a mutual fund and to receive benefits in times of need
What does the name of a friendly society often hint at?
Its history with a place or occupation e.g. Shepherd’s Friendly Society
What happens if a customer has savings split across institutions that share a banking authorisation under the rules of the FSCS?
The institutions will be treated as one.
What happens under the rules of the FSCS if someone has savings of £85,000 in one bank and another £85,000 in another that belongs to the same financial services group?
The person will only be eligible to receive £85,000
