Financial regulation (Macro) Flashcards
Cards on the financial regulations in place, why such regulation is needed and the potential limitations.
What are the financial regulators in the UK?
PRA (prudential regulation authority)
FPC (Financial policy committee)
FCA (Financial conduct authority)
Which one is operate to the government?
The FCA
What are the PRA and FCA responsible for?
Micro prudential regulation
What is the FPC responsible for?
Macro prudential regulation
When was regulation into financial institutions implemented?
After the Financial Services act of 2012
What does the PRA do?
Supervise banks and sets standards for them to follow, that they maintain certain liquidity and capital ratios.
What does the FPC do?
The FPC identifies systemic risk and judge how robust the institutions are through stress tests.
What does the FCA do?
Protect consumers and ensure healthy competition between banks.
Why do banks fail?
Insufficient capital ratios or insufficient liquidity ratios.
What happens when banks don’t have sufficient capital ratios?
A fall in the value of their assets, could happen if not enough loans are repaid
What happens when banks don’t have sufficient liquidity ratios?
A run on the bank
Why would banks end up in such states?
Moral hazards, central bank is the lender of the last resort, so the banks aren’t accountable for losses and so take risks.
What was the Basel III agreement?
A 2019 agreement that all institutions had to hold 7% of their lending in the form of capital.
What is systemic risk?
A risk that applies to a whole sector.
What are the problems with rigorous regulation?
Restricts economic activity
Takes time and money
Unintended consequences (shadow banking sector)
