Topic šest - The impact of change and uncertainty on financial products Flashcards
What are exogenous shocks
Big events that happen, and have a big long lasting impact - Covid-19
What is pure risk
When it only has downsides - a family with volcano insurance may face the risk of being volcano’d
What is speculative risk
When it can have ups and downs - Shares/stocks
Can risk ever be eliminated
NO
What is expected loss
the average amount of loss you’re expecting to make - Providers use past data to calculate risk on whether people make repayments
What is unexpected loss
When the actual loss, is bigger than the expected loss
What is catastrophic loss
A loss in excess of the unexpected loss that is unlikely
What is the standard living of people
A change in real incomes
A change in real interest rates
What type of annuity will have the smallest starting salary
RPI linked annuity’s
What is a particular problem for pensions
Stock market volatility
What do people who think they are going to be unemployed do
Put money into a savings account
Try and pay of as many debts
What are ways loan forbearance is done
Extending the term of the mortgage
giving the person a payment holiday
Allowing them to owe more as long as they pay some back
Advantages to loan forbearance
Provider can keep the asset of the loan
Doesn’t have to write the debt off
Avoids bad publicity of kicking family’s out of their houses
What is a loan given by most credit unions
Payment Waiver
What is a payment waiver
Protects customers if they are unable to make repayments due to being absent from work for illness reasons
New PPI basically
Ways providers are re-making credit products to meet the needs of those who can pay it back
Make the LTV lower - need 20% deposit instead of 0% pre crisis
Make the loans more relative to peoples incomes
Customers advised to pay more than the minimum amount on credit cards per month
What 2 big banks did the government take public shares in after the crisis
RbS
LLOYD’S
Why are the government holding RBS shares still
As they aren’t worth a lot and want to make money on them
Who enforced divestments on banks in 2009 and what banks
European Union’s Competition Commissioner
Lloyds and rbs
What is divestment
When banks have to sell part of themselves to make them smaller and increase competition
What was project rainbow
Required RBS to dispose of over 300 branches and stop other interests like churchill insurance
In the END RBS sold of its direct line stake
What was project Verde
Required Lloyds to shut branches, they converted 631 branches to TSB
TSB was put on the market
By 2017 government had sold of all it’s lloyds shares
What are the biggest challenger banks
Atom
Monzo
Tandem
Starling
Whats the point of ring fencing
To protect peoples deposits from losses made by a banks trading department
Are building society’s ring-fenced
NO
Who decides what should be ring-fenced
HM Treasury
Who is required to ensure banks stay ring-fenced
PRA
What is “Electrifying the fence”
The pra can force a banking group to completely separate wholesale and retail banking
Arguments in favour of ring fencing
A “too big to fail bank” can still default in the investment side
The services of banking must always be available
larger banks are hard to regulate, so ringfencing makes it easier
can rescue banks bad reputations
Arguments against ring fencing
The problem in banks wasn’t the size but the interconnectivity
less funding available to retail banks
Retail banks also played their part in the crisis
Larger banks are more disadvantaged and can feel targeted
What is regulatory risk
The risk of increasing regulations
Examples of the costs of regulations
Compensating the mis-selling of financial products
The administration costs
The cost of complying with BCOBS and standards of lending practice
The direct cost of getting staff compliment with regulations
How do regulations effect customers
Higher fees on products
May stop giving loans to small businesses and poor people as it costs them too much
How much will the 2020 aussie Forrest fires cost
100bn australian bucks
2 ways of dealing with catastrophic loss
In advance take steps to eliminate the financial impact
preparation is the more realistic approach - disaster recovery planning to save info
Whats the best way to counter risk via the weather
INSURANCE
Have floods been more frequent in recent times
YES
How many houses are in risk of flooding in the uk
5 Million
Whats a catastrophe bond
People buy a bond and if the catastrophe doesn’t happen they receive money - a tornado bond will not pay out if a tornado happens
What is the Murabaha method
a Sharia- compliant lender may buy the house from the seller and then resell it to the buyer at a profit
1the buyer will repay in instalments
but no penalties will be charged for late payment.
What is the ijara method
The bank buys the property and leases it to the customer until they own the house
Example of 2 sharia law compliant banks in uk
Al Rayan Bank
Qatar Islamic Bank.
What is Gharar
Uncertainty in business
What did the pope talk bad about, and good about
Bad - payday loans (Had indirectly invested in them making him look like a knob)
Good - Credit unions
What is sunnah
An act that is rewarding, profit Muhammad did things that were sunnah
Who must also be responsible for financial decisions
The individual themselves
What is green finance
describes investment into sustainable projects and policies that aid the growth of a green economy
What did the government announce in 2017 to speed up the growth of green finance
Establish a green taskforce
Deliver ambitious proposals to increase green investment
Develop green standards to promote investments in sustainable projects
What is cyber terrorism
Hackers attacking computer network to give viruses and cause major distruption
How can you counter cyber terrorism
strong virus protection
firewalls
Specialists and staff trained accordingly
Can you buy terrorist insurances
No
Who is in charge of going against money laundering and financial crime
the fca
