topic tre - Sustainability in the financial services sector Flashcards
What is sustainability in the financial sector
The systems that have been set up, can be maintained in the future
What time frame does sustainability effect
Long - Term
What are the main 3 sustainability’s needed
Economic
Social
Environmental
What are the 2 ways environmental sustainability can reduce human impact
- By means of good environmental
management EG Pollution and water
management - by means of good demand management Eg effectively managing human consumption of things
What is argued that societies now need to do
Maintain production and consumption on a sustainable level, rather than maximizing profits
What is social sustainability
It is about creating a community that fosters well-being, peace , security and justice
Examples of social sustainability
Accessible education
reducing the gap between rich and the poor
Put simple what is financial sustainability
One that will not fail
What caused the great depression (1929)
People were buying a bunch or shares causing them to rise, eventually this bubble popped and caused the stock prices to collapse
What is vital to a country’s economics
That the financial system doesn’t fail
What would happen if banks all started to fail
Unable to give salaries
The government would stop receiving taxes
Customers would lose the money in the bank (Unless FSCS protected)
When is a period officially a recession
When GDP falls over 2 quarters
How does a recession effect government funding
Fewer workers so less income tax
Fewer people are spending so less VAT
Firms making less so less cooperation taxes
What is systematic risk
Refers to risk that affects the financial system as a whole
What are large important banking firms known as
Systematically important financial institutions
Why would it be bad if a large bank collapsed
Other banks dependant on them would lose that, therefore not having the money to pay others and creates a domino effect
When is systematic risk at it’s highest
When there’s large banks
There’s large banks working very closely with each other, if one collapses the other would too
What is financial contagion
The problems of one bank, then spreading to other banks
If countries financial confidence was lost what would happen
Internationally banks wouldn’t get along leading to countries going into a recession
Example of the UK government having to take action on a bank
Northern Rock 2007
How much money did the government spend in 2009 bailing out banks
94Bn
What is the opposite of too big to fail
Too big to save
What is moral hazard ownership
If banks know they are too big to fail and will get bailed out, their owners will run more risky operations
What did the banking act 2009 allow the government to do with failing institutions
Allows the institution to be sold to a private buyer
Transfers the bank into the BOE until it’s saved
Putting the bank into public ownership
Applying to make the bank insolvent
What factors do the government keep in mind while bailing out a bank
To make sustainability in the financial sector
To enhance public confidence
to protect depositors
To protect public funds
To avoid interfering with property rights
What are the main regulations for banks
Banks must hold more capital by issuing more shares
banks must hold more liquid assets
banks must rely more heavily on customer deposits
banks must reduce their leverage
banks must tighten up their lending criteria
What are the objectives of the Financial Policy committee (FPC)
Identify, monitor and take action to remove or reduce systematic risk
Support the economic policy of the government
What are the objectives of the Prudential Regulation Authority (PRA0
Promote the safety and soundness of firms
Contribute to securing an appropriate degree of protection for insurance policy holders
Facilitate effective competition between firms
What are the objectives of the Financial Conduct Authority
Secure an appropriate degree of protection for consumers
protect and enhance the integrity of the UK financial system
Promote effective competition in the interests of consumers
How should a provider act the be sustainable
Run prudentially
What main 2 regulations should providers follow
Prudential management of it’s balance sheet
Principles and rules governing how it deals with customers, eg Customers are treated fairly
What is a reason to become a Shareholder
So you can live of it’s income
Invested in your pension scheme
What are speculators
People who buy and sell shares to create profit
What benefits do directors get
High salaries
Bonuses
Fringe Benefits
What is a directors role
They map out the path the company takes
Determine their business model
What did the Financial services act 2013 do to directors
Made it an offence for a director or senior employee of a bank take a risk that they know could end in systematic failure
What is an employees role in sustainability
Keeping correct practices - EG If a customers want a larger loan they cannot afford, steer them towards a smaller loan
What is a sustainable financial product
A product that is designed to meet the long-term requirements of those who buy them
Example of a sustainable financial product
Mortgage - Long term, small interest loan
Example of a sustainable product that can be used unsustainably
A credit card - People can max out multiple and then only pay back the minimum every month
What is the most important factor in a product portfolio
Balance
What is it sensible to do when buying different insurances
Buy from different providers so if one defaults you don’t lose everything
Was is responsible spending defined as
Borrowing only as much as they can pay back over the time period
What did the mortgage market review from the fca say
It is the lenders job to decide whether someone can afford their loan or not
Lenders can offer interest only mortgages, but they say to see proof of a sufficient way they will pay it off
What must borrowers look at while assessing whether someone can afford a loan
Checking their income with their employer
Checking their regular expenditure
Checking they can pay if interest rates rises
Not lending to a high risk customer
What does the FCA keep in mind with consumer protection
Different degrees of risk in certain transactions
The different degrees of experience and expertise
The need for timely provision of accurate information
What penalties can the FCA do
Withdraw a firms authorisation
suspending firms
fining firms
applying to the courts for injunctions and orders
What did the FOS do to PPI sellers
Make they pay big money back to the people who were mis sold it
What are the equator principles
Ethical benchmarks for banks to follow when taking decisions to finance infrastructure like dams
What are the 4 levels of sustainability
Sustainability of the system as a whole
Sustainability of individual providers
Sustainability of individual products
Sustainability of individual customers
