6.6 The regulatory view of risk

Question 1

Which sector faces the most prescriptive regulatory risk framework?

Answer 1

Banking

Question 2

Who developed the global banking regulation framework?

Answer 2

The Basel Committee on Banking Supervision (BCBS)

Question 3

Regulators require a r______- bank to hold more c______ to compensate for potential losses.

Answer 3

riskier

capital

Question 4

Following management failures in the 2008 financial crisis, banks must comply with additional requirements:

• l______ coverage ratio (LCR) covering short term liquidity requirements
• net stable f______ ration (NSFR) focussing on longer term funding

Answer 4

liquidity

funding

Question 5

What is the purpose of regulatory stress tests in the banking sector?

Answer 5

Measure banks resilience to severe macroeconomic shocks such as economic slowdown or interest rate issues.

Question 6

Banking regulators have recently implemented two types of tests to manage the banking sector. What are these?

Answer 6

Vulnerability testing - making banks come up with scenarios that would make their business inviable

Wind down testing - ability to wind down banking businesses