Prudential Supervision Flashcards
Who is responsible for the prudential regulation of deposit-takers and insurers?
A) Financial conduct authority (FCA)
B) Prudential Regualtion authority (PRA)
C) Monetary Policy committee (MPC)
D) Financial Policy Committee (FPC)
B) Prudential Regualtion authority (PRA)
Why does the FCA concentrate on managing the failure of an individual firm if it happens rather than proactively seeking to prevent its failures in the first place?
The FCA is the prudential supervisor for smaller firms that, in general, would not present a risk to the wider financial system if a particular one were to fail.
Therefor, the regulator concentrates its resources on managing a firms failure in an orderely way to mitigate the impact on its customers.
Capital adequacy requirements are based on the principle that in the event of a firm making a loss:
A) it can approach the bank of england for additional funds
B) its depositors, not it’s shareholders, should bear the loss
C) the basel committee will determine whether the firm has sufficient capital to continue trading
D) it’s shareholders, not it’s depositors, should bear the loss
D) it’s shareholders, not it’s depositors, should bear the loss
What is a banks solvency ratio?
Capital as a percentage of risk-adjusted value of assets
How did Basel II seek to ensure that capital adequacy requirements more accurately reflected the risks represented by a firms assets?
Under Basel II, instead of calculating their capital requirement as a percentage of the total value of their assets, firms were required to catogerise each asset according to the risk it represented and hold more capital in relation to the riskier assets.
Under Basel III banks in the EU must work towards a minimum solvency ratio of
A) 7 per cent
B) 8 per cent
C) 5 per cent
D) 4 percent
A) 7 per cent
Basel III introduced new measures with regard to a banks capital and asset liability management. Which of these measures is aimed at protecting the long term financial stability of a bank
A) the liquidity coverage ratio
B) the net stable funding ratio
C) the tier 1 capital measure
D) the tier 2 capital measure
B) the net stable funding ratio
What are the key aims of solvency II?
Reduce the risk of an insurance company being unable to meet its claims
Reduce losses suffered by policyholders should an insurer be unable to meet all claims in full
Establish a system of information disclosure that makes regulators aware of potential problems at an early stage
Promote confidence in the financial stability of the insurance sector
Which of the following sections of the FCA handbook contains details of the prudential requirements applying to banks, building societies and investment firms?
A) birpu
B) ifpru
C) mipru
D) ipru-inv
A) birpu
In the EU then requirements of the various Basel accords are implemented by which legislation?
Capital requirements directive
Basel III implemented by CRD IV
What is the Basel committee on banking?
Multinational body acting under the auspices of of the bank of international settlements. Based on Basel, Switzerland.
It’s role is to strengthen the regulation, supervision, and activities of banks to enhance financial stability.
The framework sets out certain criteria such as minimum capital requirements.
Also known as the Basel accord.
What are the main functions of the Bank of England?
Issuer of bank notes
Banker to the government
Banker to other banks
Adviser to the government
Manager of the UK’s gold and foreign currency reserves
Lender of last resort
What are the differences between Capital Requirements Regulation (CRR)
And
Capital Requirements Directive (CRD)
The CRR is a regulation so all it’s terms are binding in full on all the UK businesses to which it applies.
The CRD is a directive, so the UK government had some discretion as to how best implement its requirements.
PRA and FCA handbooks contain the CRD requirements.
The three main pillars of Solvency II?
Insurance
Pillar 1 - capital requirements and the valuation of assets
Pillar 2 - Governance and risk management requirements
Pillar 3 - disclosure and transparency rules
