Banks and Financial Regulations

Question 1

What is M4 and how to work it out?

Answer 1

Official UK measure of money
- M4 = C + D
C = Currency
D = Deposits of non banks

Question 2

Drawbacks to M4

Answer 2

• Excludes currency held by banks
• Excludes deposits of UK gov

Question 3

What is Monetary Base and how to work it out?

Answer 3

Outside money. Total amout of money in circulation or held in reserves
MB = C (tot) + R
C (tot) = Currency in circulation
R = Reserves (comm bank)

Question 4

What is the money multiplier?

Answer 4

Ratio of MB ‘Broad Money’ to M4 money, shows private money creation
- MM = M4/MB

Question 5

How can Central Banks influence money creation?

Answer 5

1. Through open market operations and interest rates
2. Through regulation of financial institutions (banks+non bank)

Question 6

Who has regulation responsibilities in the UK?

Answer 6

Bank of England and Financial Conduct Authority (FCA)

Question 7

What are Macro - prudential regulations

Answer 7

Requires banks to ensure that bank capital remains above minimum threshold

Question 8

Why is Capital important for banks

Answer 8

It affects their loss-absorbing
Maintains confidence
Ability to lend
Help the economy