Influence Of The EU

Question 1

What are regulations?

Answer 1

Binding in their entirety and directly applicable in all member states

Question 2

What are directives?

Answer 2

Are binding upon each member state, objectives must be achieved within a timescale (typically 2 years) but exactly how they are achieved is left to national authorities in each member state.

Question 3

What is the Basel Committee?

Answer 3

Is to strengthen the regulation, supervision and practices of banks worldwide, with the purpose of enhancing financial stability.

Question 4

What is Basel I (Basel Accord)?

Answer 4

This set out minimum capital requirements for banks. These were adopted by G10 countries.

Question 5

What is Basel II?

Answer 5

Objective was to establish an international standard for banking regulators in terms of how much capital they should hold to provide protection against financial and operational risks.

Question 6

What are the three pillars when it comes to Basel II?

Answer 6

Pillar 1 : Details capital requirements when it comes to three aspects:
Credit risk;
Operational risk; and
Market risk.

Pillar 2: gives regulators more effective regulatory tools and enables them to deal with individual components of risk

Pillar 3: disclosure requirements so capital adequacy can be properly assessed

Question 7

What are stress tests?

Answer 7

Computer simulation to see how economic affects can have an effect on the firm. Basel II requires firms to carry this out.

Question 8

What will Basel III cover when it is introduced in March 2019?

Answer 8

Regulatory capital, assets and liability management.

Question 9

What is regulatory capital?

Answer 9

Capital a firm is required to hold to meet regulatory requirements.

Question 10

What is the minimum solvency ratio Basel III will require firms to hold by 2019?

Answer 10

7% risk adjusted value of its assets

Question 11

Two new ratios Basel III have introduced that firms must adhere to?

Answer 11

Liquidity Coverage Ratio (LCR)

Net Stable Funding Ratio (NSFR)

Question 12

What is CRD? And what is the latest iteration?

Answer 12

Capital Requirement Directives and CRD IV

Question 13

What is the purpose of a CRD?

Answer 13

Establishes a supervisory framework and aims to minimise the negative effect on a firm and ensuring it has enough capital to cover risks