8.4 Regulation of the financial system Flashcards
1
Q
What is bank failure?
A
It suffers a fall in the value of assets so that its capital liabilities supporting them are unmatched. If a bank does not have enough capital to support its assets, the bank is insolvent
2
Q
How do you calculate the liquidity ratio?
A
Cash + other liquid assets/deposit liabilities
3
Q
How do you calculate the capital ratio?
A
amount of capital/loans
4
Q
What is moral hazard?
A
any situation in which one person makes the decision about how much risk to take, while someone else bears the cost if things go badly
5
Q
What is systemic risk?
A
Systemic risk refers to the risk of a breakdown of an entire financial system rather than simply the failure of individual parts within the system
