topic tre - Sustainability in the financial services sector Flashcards by Scott English

What is sustainability in the financial sector

The systems that have been set up, can be maintained in the future

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What time frame does sustainability effect

Long - Term

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What are the main 3 sustainability’s needed

Economic
Social
Environmental

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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

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What is argued that societies now need to do

Maintain production and consumption on a sustainable level, rather than maximizing profits

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What is social sustainability

It is about creating a community that fosters well-being, peace , security and justice

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Examples of social sustainability

Accessible education

reducing the gap between rich and the poor

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Put simple what is financial sustainability

One that will not fail

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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

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What is vital to a country’s economics

That the financial system doesn’t fail

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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)

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When is a period officially a recession

When GDP falls over 2 quarters

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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

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What is systematic risk

Refers to risk that affects the financial system as a whole

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What are large important banking firms known as

Systematically important financial institutions

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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

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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

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What is financial contagion

The problems of one bank, then spreading to other banks

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If countries financial confidence was lost what would happen

Internationally banks wouldn’t get along leading to countries going into a recession

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Example of the UK government having to take action on a bank

Northern Rock 2007

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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