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Banking Theory and Practice > Chapter 2 > Flashcards

Chapter 2 Flashcards

1
Q

What are the the function of ACIS

A

Enforcement
Consumer Protection
Compliance

Regulation
Operations
Finance

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2
Q

What is the 3 components of regulatory framework

A

RBA
APRA
ACIS

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3
Q

RBA main responsibility

A

The determination and implementation of monetary policy

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4
Q

Explain monetary policy

A

Actions taken to affect the cash rate to help achieve economic objectives of low inflation and sustainable growth

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5
Q

What is the objective of monetary policy

A

Maintenance of stable currency of Australia

Maintenance of full employment in Australia

Maintenance of economic prosperity and welfare of the people of Australia

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6
Q

What is the key role of CFR and two other functions that it serves

A

Serve as a forum to exchange information between RBA, APRA and ACIS

Also allows representation from federal government

No overlap and no inconsistencies

notification of regulatory decisions that may affect other agencies and cooperation in the event of financial disturbances

avoid overlaps and gaps in regulatory coverage that sometimes occur when more than one party deals in similar issues

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7
Q

Either than the main responsibility what are the other responsibilities of the RBA

4 points

A
  • Maintain financial system stability
  • overseeing the payment system
  • market operations
  • Production and issue, reissue and cancellation of Australia’s notes
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8
Q

Explain how the RBA tries to manage financial instability

A

RBA concerned of the whole system not individuals FIs

Respond to events that cause disturbances in the financial system

It can lend to FI’s as a lender of last resort if failure has serious implication

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9
Q

Explain a stable financial system

A

One in which financial intermediaries, markets and market infrastructure facilitates the smooth flow of funds between savers and investors.

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10
Q

What is the payment system and what does the RBA try and achieve by overseeing the payment system

A

The “payment system” refers to arrangements which allows consumers, businesses and other organisations to transfer funds to one another

To enhance the safety and efficiency of the payment system

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11
Q

How is the cash rate determined

A

The rate is a market-determined through the supply and demand of market funds in the the exchange settlement accounts. Funds are negotiated between borrowers and lenders in the overnight bank market in which banks lend overnight funds to one another

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12
Q

How does the RBA control the ESA Funds.

How does it increase or decrease the cash rate

A

Through the supply and demand of government securities.

The cash rate and quantity of ESA funds are inversely related.

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13
Q

Why does the RBA intervene in the forex

A

To maintain a stable currency, which is one of its objectives

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14
Q

What is the objective of ACIS

4 points

A
  • uphold the law uniformly, effectively and quickly
  • promote confident and informed participation by investors and consumers in the financial system
  • make information about companies and other bodies available to the public
  • Improve the performance of the financial system and entities within it
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15
Q

What is ACIS responsible for

3 points

A

Consumer credit regulators

Market regulators

Financial Service regulators

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16
Q

Explain prudential supervision and what is the aim

A

Prudential supervision involves controlling the risks taken by financial institutions

The aim is to increase the safety of depositors funds

17
Q

List the FI’s that APRA have prudential supervision of

A
  • banks
  • Insurance companies
  • superannuation companies
  • non-bank deposit-taking institutions
18
Q

What is the Financial Claims Scheme

A

The FCS applies to deposits held with ADIs incorporated in Australia. Guarantees deposits of 250 000 per customer per ADI

19
Q

Explain how APRA achieves prudential supervision instead of strict regulation

5 points

A

It does not apply a one size fits all model for supervising FI’s

APRA does not restrict what risk a FI can take but provides regulation in which FI’s must prove they can handle the risk

It approaches supervision through a risk based approach in which to maximize deposit safety and systemic stability

It is a single regulator which applies consistent regulation to all FIs therefore maintaining systemic stability

Can take over FI when it faces serious financial securities

20
Q

What is money laundering

A

Converting profits from illegal activities to give the perception that it originated from legitimate origins

21
Q

Explain the three main steps in money laundering

A

Placement — The initial point of entry for funds derived from criminal activities. The large initial amount is broken up into smaller less conspicuous sums. The deposit of funds are placed into accounts where the FI’s are relaxed about the origins of funds. Somewhere where high traffic will bot be noticed or where money can easily be transported to without detection

Layering — Uses companies and banks registered in off-shore centers to confuse the paper trail, Complex network of transaction which attempt to obscure the link between the initial entry point. Makes it more difficult to traces the origin of the funds

Integration - The money is funneled back into the economy to give the appearance that the funds are legitimate. E.G. you could argue that the funds are from the sale of an asset. OFC can be used if it is reliable

22
Q

Explain how FATF is trying stop ML

A

Provides a guidance on regulation that should be implemented which will strengthen financial system to increasing the difficulty of money laundering

It uses a name and shame policy to try and get financial institutions to implement the recommendations, this has been extended towards terrorism

23
Q

How does an offshore center operate

A

Jurisdiction where financial institutions and business are set-up which do not conduct or conduct very little domestic business. If well supervised and regulated and cooperate with other jurisdiction are not problematic

Banking Theory and Practice (8 decks)

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