regulation of the financial system

Question 1

which 2 regulators are part of the bank of england

Answer 1

financial policy committee FPC
prudential regulation authority PRA

Question 2

which regulator isn’t part of the bank of england

Answer 2

financial conduct authority FCA

Question 3

macro prudential of FPC

Answer 3

concerned with identifying and monitoring risks to the overall stability of the financial system and acting to remove those risks

Question 4

micro prudential of PRA and FCA

Answer 4

has a focus on ensuring the stability of individual banks and financial institutions - identifying and monitoring and acting on risks to individual firms

Question 5

micro prudential of PRA

Answer 5

regulates and supervises individual banks, building societies, credit unions, insurers and major investment firms

• responsible for stress testing uk banks

Question 6

micro prudential of FCA

Answer 6

aims to make sure financial markets work well by promoting competition and ensuring consumers get a fair deal and ensuring firms act with integrity

Question 7

what is a run on the bank

Answer 7

a scenario where an unusually large number of people wish to withdraw their deposits usually in response to some sort of panic

Question 8

moral hazard

Answer 8

when a firm or individual in perusing profits takes on too much risk while knowing someone else will bear a significant proportions of the cost

Question 9

why do banks fail

Answer 9

• rogue employees
• low capital ratios
• action of the regulator
• run on the bank // low liquidity ratio
• banks borrow short term and lend longer term
• recklessness // weak regulation// lack of firewall
• the government let them

Question 10

what is a liquidity ratio

Answer 10

measures ratio between banks liquid assets and expected outcries from the bank