Topic 4 - Regulations of the financial system Flashcards
What is the role of the financial policry comittee of the BoE
To identify, stop, reduce risks that could cause financial instabiliity/ threatenn the financial system
What can the PRA
Instructbanks to increase capital buffers, say if risks are increasing - meaning banks would be able to deal/absorb losses without too much damage
What are liquidity ratios
The ratio of liquid assets to total assets
What are capital ratios
The ratio between stable funds in reserve to funds that are vunerable in a crisis
What is a moral hazard
People taking risks as they know others will bear the costs
What is an example of a moral hazard
Where banks take a risk knowing gov can bail out
Wat is a systmatic risk
Where a small shock in say in one bank causes a greater shock in the economy .
Who are the PRA
Micro scale regulators, they maintain banking stability, supervise management of risk, set standards and specify regulation and requirements
What are the FCA
The financial conduct authority who advise consumers and increase their confidence in financial insututions and products
How can the FCA increase consumer confidence
Ensure - No market rigging Gettign consumer better deals Banning miselling Banning misleading banking advertisement
Inetnetion of maximum interest rates
Prevent exploitation of excessive risky lending.
Intent of degreulation
To increase competitiom
Intent on limits of bank lending
Lower chances of bank failiure and systemic risks
What are issues with financial market regulation
Banks may take risks due to them kknowing they can have bailouts, etc
Banks may keep information from regulators, meaning regulations may be incorrect.
