CHAPTER 6: Methods to Regulate Financial Service Systems

Question 1

What is a “run” on deposits?

Answer 1

“run” on financial institution - taking all of your money out of that bank due to a negative financial situation.

Question 2

What is Contagion?

Answer 2

The effect of one bank will spread to other banks

Question 3

4 Main Principles of government regulation include?

Answer 3

Enabling the safety of the system
Encouraging efficiencies
Promoting competition
Supporting social goals

Question 4

7 significant driving forces: Name 3

Answer 4

Technological change
Jurisdictional issues
demographics

Question 5

Regulation of Canada’s financial system occurs in three different forms, what are they?

Answer 5

Self-regulation
- Self-policing issue, ethical responsibility to detect and catch any problems in house before it goes public

Institutional Regulation
- Involves regulating the individual firms that make up a specific industry, or group of institutions

Functional Regulation
- Is the third, and potentially most important, form of regulation, spear-headed by OSFI

Question 6

4 Major Roles of the Office of Superintendent of Financial Institution (OSFI)

Answer 6

Supervising financial status

Advising any material deficiencies

Advancing and administering regulatory framework

Monitoring and evaluating issues that may negatively impact financial institution

Question 7

Supervision is driven by 4 main areas of concern:

Answer 7

Capital Adequacy
Prudent limits of lending
Accounting Standards
Sound of Business and Financial Practices