The International Banking Regulatory Architecture Flashcards

You may prefer our related Brainscape-certified flashcards:
1
Q

What are the Core Problems in International Banking Regulation (IBR)?

A

Inter-jurisdictional Arbitrage and Contagion.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Why is IBR particularly Prescient today?

A

Banks are increasingly globally interconnected, thus exacerbating the danger of contagion, e.g. TBTF Banks and the GFC.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Of the various gambit of risks, which are especially Relevant to International Banks?

A

Currency and Country Risk.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is Currency Risk?

A

The risk that fluctuations in foreign exchange rates will adversely affect a bank’s operation.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is Country Risk?

A

The risk that changes in foreign country’s politico-legal or economic conditions will adversely affect a bank’s operation.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Why are National Regulators ill-equipped to oversee International Banks?

A
  • Information asymmetries which hamper the capacity to oversee the bank’s entire operation.
  • Inter-jurisdictional legal and regulatory arbitrage.
  • Home-Host Country ambiguities of responsibility.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What has been the Solution to National Regulators’ incapacity to regulate International Banks?

A

The development of an international financial architecture which encourages coordination and cooperation between national regulators.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Which institutions form the Central Pillars of the International Financial Architecture (IFA)?

A

The Basel Committee on Banking Supervision (BCBS) and the Financial Stability Board (FSB).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is the Function of the BCBS?

A

To formulate standards and guidelines, and make recommendations to national regulators in the expectation that they will be implemented.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Are the BCBS’s edicts binding?

A

No. They are soft law.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

How are Countries represented on the BCBS?

A

By either their central bank or prudential regulator.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Why are the BCBS’s edicts widely observed?

A

Its Members’ power and clout afford the body great global influence, such that when they implement a recommendation, other countries are likely to do the same.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

How else does the BCBS encourage compliance with its edicts?

A

Using its Regulatory Consistency Assessment Programme (RCAP), which evaluates whether and to what extent naitonal regulators implement its edicts, e.g. Basel III.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

According to Cranston, what is the practical effect of the RCAP?

A

It, “harden[s] the edges of [the BCBS’s] status as a soft law body.”

See: Cranston et al., Principles of Banking Law, 21.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

In what ways it the use of Soft Law in Financial Regulation advantageous?

A

It is politically sensitive and quick and flexible due to its informality.

See: Lee, The Soft Law Nature of Basel III and International Financial Regulations 607.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is the Function of the FSB?

A
  • To monitor and advise on market developments and their regulatory implications;
  • To formulate standards and guidelines thereupon; and
  • To aid in the establishment and maintenance of supervisory colleges.

For more, see: P. 199.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Are the FSB’s edicts binding?

A

No. They are soft law. Due to its extensive base and similar modus operandi to the BCBS, it has been very successful.

See: P. 198-199.

18
Q

Orbiting the BCBS and the FSB, what other institutions comprise the IFA?

A
  • The International Monteary Fund (IMF).
  • The World Bank (WB).
  • The Committee on the Global Financial System (CGFS).
  • The Committee on Payments and Market Infrastructures (CPMI).
  • The Joint Forum (JF).
  • The Financial Stability Institute (FSI).
  • The Financial Action Task Force (FATF).
19
Q

What was the Basel Concordat of 1975?

A

A convention which established guidelines for the cooperation of natinonal regulators regarding the supervision of international banks’ foreign establishments.

20
Q

How did the Basel Concordat of 1975 categorize Foreign Establishments?

A

By devising the following classes:

  • Branch: Integral part of a foreign parent bank.
  • Subsidiary: Legally independent and domestically-incorporated institution that is controlled by a foreign parent bank.
  • Joint Venture: Legally independent and domestically-incorporated institution that is controlled by two or more mostly foregin institutions.
21
Q

According to which Metrics did the Basel Concordat of 1975 propose to frame Bank Supervision?

A

Liquidity and Solvency risk and Foreign Exchange exposure.

22
Q

How did the Basel Concordat of 1975 encourage Regulatory Cooperation?

A

By promoting:

  • Free-flowing information between Home-Host authorities.
  • Home authorities’ ability to directly inspect a domestic bank’s foreign establishments; and
  • Home authorities’ ability to indirectly inspect a domestic bank’s foreign establishments through reliance on host authorities.
23
Q

Under the Basel Concordat of 1975, how were Regulatory Responsibilities divided?

A

Generally, liquidity and solvency supervision rested with the Host, subject to Home authority’s cooperation. ForEx exposure was more jointly endeavored.

24
Q

What was the Purpose of the 1983 Revision of the Basel Concordat?

A

To provide a more sophisticated account of Home-Host authority supervision of foreign establishments.

25
Q

What are the Central Principles of 1983 Revision?

A

That no foreign banking establishment should escape supervision and that supervision should be adequate across the board.

26
Q

More than anything, what did the 1983 Revision emphasize?

A

That international supervision was a multi-lateral endeavor which required the full and adequate participation of all parties.

27
Q

How did the 1983 Revision amend the Division of Responsibility regarding Liquidity?

A
  • Branch: Joint responsibility.
  • Subsidiary: Joint responsibility.
  • Joint Venture: Joint responsibility.
28
Q

How did the 1983 Revision amend the Division of Responsibility regarding Solvency?

A
  • Branch: Primarily the Home authority’s responsibility.
  • Subsidiary: Joint responsibility.
  • Joint Venture: Joint responsibility.
29
Q

How did the 1983 Revision amend the Division of Responsibility regarding Foreign Exchange Operations?

A

All foreign exchange operations are the joint responsibility of both Home and Host authorities.

30
Q

What was the Ultimate Effect of the 1983 Revision?

A

To consolidate the practice of international supervision.

See also: BCBS, Minimum Standards for the Supervision of International Banking Groups and their Cross-Border Establishments (July 1992).

31
Q

What are the Basel Core Principles (BCPs)?

A

The de facto minimum standards for the sound prudential regulation of banks.

See: BCBS, Core Principles for Effective Banking Supervision (2012),

32
Q

What do the BCPs pertain to?

A

P. 1-13 address supervisory powers, responsibilities, and functions, emphasizing risk-based analysis and proactivity. P. 14-29 address banks’ expectations, e.g. risk management and corporate governance.

33
Q

How is Compliance with the BCPs assessed and measured by the BCBS?

A

With reference to a set of essential criteria and a four-grade scale.

See: P. 213-214.

34
Q

What is a Supervisory College?

A

“A multilateral working group of relevant supervisors that are formed for the collective purpose of enhancing effective consolidated supervision of an international banking group on an ongoing basis.”

See: BCBS, Priciples for Effective Superivsory Colleges (June 2014), Principle 1-7.

35
Q

What are Intended Goals of forming a Supervisory College?

A
  • Enhance information-sharing and communication;
  • Develop common understandings of international banks;
  • Coordinate supervisors’ agendas; and
  • Increase the net quality of supervision.

See: BCBS, Priciples for Effective Superivsory Colleges (June 2014), Principle 1

36
Q

How are Supervisory Colleges to be structured?

A

In a way which enhances the efficacy of overseeing international banks. This entails the creation of, where necessary:

  • A Core College;
  • A General College;
  • A Global College; and
  • A Regional Core College.

See: BCBS, Priciples for Effective Superivsory Colleges (June 2014), Principle 2.

37
Q

Principles 1 and 2 pertain to Objectives and Structure. What do Principles 3-7 pertain to?

A
  • Principle 3: Information Sharing.
  • Principle 4: Communication Channels.
  • Principle 5: Supervisory Collaboration.
  • Principle 6: Interaction with the Banking Group.
  • Principle 7: Crisis Preparedness.
38
Q

What Obstacles do Supervisory Colleges regularly face?

A
  • Worries regarding the confidentiality of information shared;
  • Power imbalances within the structures;
  • Occasional unavailability of expertise and resources;
  • Operational difficulties, e.g. language barriers or secrecy laws.
  • Insufficient understanding of each other’s legal systems.
  • Insufficient crisis prepardedness.

BCBS, Progress Report on the Implementations of Principles for Effective Supervisory Colleges (July 2015) and (December 2017).

39
Q

What is the College Meeting Cycle?

A

The stages at which Colleges meet on any given year, namely:

  • Pre-College Meeting (prepartory);
  • Formal College Meeting (executive);
  • Post-College Meeting (retrospective); and
  • Between College Meetings (ad hoc).

BCBS, Progress Report on the Implementations of Principles for Effective Supervisory Colleges (December 2017).

40
Q

What is a Systemically-Important Financial Institution (SIFI)?

A

A financial institution whose failure might trigger a financial crisis.

41
Q

Post GFC, how have SIFIs been treated by the IFA?

A

With greater vigilance.

See: P. 222-223. FSB, Intensity and Effectiveness of SIFI Supervision Recommendations; FSB, Supervisory Intensity and Effectiveness: Progress Report on Enhanced Supervision (April 2014).