finaical regulation Flashcards

1
Q

types of regulation

A

1) ban market rigging and ensure strong enforcement- less collusion
2)prevent sale of unsuitable products: protect consumers from products with excessive risks
3) max interest rates prevent exploitation
4) deregulation: more competition better borrowing i.r. and saving
5) deposit reg: protect consumer deposits in case of bank run
6) set limit on bank lending (cash ratios, liquidity ratios)

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2
Q

cash ratios

A

cash ratio: cash assets(cash/reserves)/short term liabilities (deposits/short run borrowing)
-reg: impose or raise to prevent liq. crisis
-basel: none

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3
Q

reserve requirements

A

fraction of deposits must be held by 10%
-impose/raise it
-prevent liquidity
-no basel rec (10% in USA)

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4
Q

capital ratio

A

-capital/loans
-impose or raise
-prevent insolvency and thus systemic risk
-basel: 8%

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5
Q

leverage ratio

A

-capital/loans and long term investments
-impose or raise
-prevent insolvency and systemic risk
-basel: 3% minimum all loans and comprehensive

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6
Q

liquidity ratio

A

liquidity ratio: current assets (same as cash w money at short notice and investments)/current liabilities
-regulation impose or raise to pay back
-basel: 2015 60% increase by 10% to 2019
liquidity coverage ratios: 100% liquidity to cover liabilities in 30 years

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