Financial Maket Regulation Flashcards
What are the 3 regulators?
FPC - Financial Policy Committee
PRA - Prudential Regulation Authority
FCA - Financial Conduct Authority
Describe the FPC
Financial Policy Committee
Macro prudential
Identify and protect against systemic risk
They work with the PRA and FCA to protect against systemic risk
They have the power to enact stress tests and provide emergency liquidity
They can advise the gov of potential legislation and potential bailouts
Describe the PRA
Prudential Regulation Authority
Micro prudential
They supervise the management of risk
They set and enforce industry standards (eg liquidity ratios)
Describe the FCA
Financial Conduct Authority
Protect consumers and increase consumer confidence in financial institutions and financial products
What are the main ways that financial institutions and products are distrusted?
Market rigging
Deregulation
Ban mis selling
Promote truth
How can the FCA do its job?
• Supervising behaviour and enforcing legislation (Eg no market rigging)
• Promoting competition (Deregulation)
• Banning selling of financial products against consumer interest (Ban Mis selling)
• Ban/Change misleading adverts (promote truth)
Which regulator is part of the treasury?
FCA - Financial Conduct Authority
What are the different financial markets?
Money markets
Capital markets
Currency markets
What are the functions of comercial banks?
Private loans
Accept deposits
Overdraft
Investment of funds (of private equity)
Agency functions (admin stuff)
What are the different ratios?
Cash
Liquidity
Reserve
Capital
Leverage
Why is there a leverage ratio?
Long term investments like mortgages were seen as low risk so they were ignored which helped lead to the financial crash of 2008
In terms of calculating capital ratios what is capital?
Liabilities of
Shareholder funds
Retained profits
What is bank capital?
It is what is left over when assets have been sold and liabilities have been paid.
What are the disadvantages of imposing financial ratios?
Creates moral hazard
Regulatory capture
Creation of loan sharks fjkbgfjkbgfjks
Increased costs (admin)
What are the advantages of financial ratios?
Increased benefits over costs
Increases confidence in the financial markets
Increases consumer confidence in general
