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CQIB - Chapter 3 - The Regulatory and Legal Framework > Unit 4: International Regulatory Bodies > Flashcards

Unit 4: International Regulatory Bodies Flashcards

1
Q

What is the Basel Committee on Banking Supervision (BCBS)?

A

An international body for cooperation on banking supervisory matters.

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2
Q

What does the Basel Committee aim to do?

A

Enhance financial stability (through strengthened regulation, supervision and practices of banks worldwide)

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3
Q

Who represents Australia in the Basel Committee on Banking Supervision (BCBS)?

A

APRA and the RBA

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4
Q

When was the original Basel Accord (Basel I) agreed?

A

1988

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5
Q

What did the original Basel Accord (Basel I) do?

A

Established minimum capital requirements for banks (thereby increasing the stability of the international banking system).

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6
Q

When was the framework for Basel II Accord published?

A

2007

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7
Q

What are the 3 pillars of the Basel II Accord?

A
  1. Minimum capital requirements
  2. Governance to determine who needs to meet minimum capital requirements.
  3. Improve market discipline (by making firms publish details of risk and its management)
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8
Q

What prompted Basel III?

A

Issues revealed by the global financial crisis in the late 2000s

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9
Q

What does Basel III focus on?

A

Reform measures designed to improve risk management, and a global framework for bank liquidity regulation.

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10
Q

What are the main differences between Basel I, II, and III in relation to risks addressed?

A
  • Basel I (1998) - credit risk
  • Basel II (2007) - credit / market / operational risk
  • Basel III (2010 onwards) - credit / market / operational and liquidity risk
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11
Q

What are the main differences between Basel I, II, and III in relation to overall objectives?

A
  • Basel I (1998) - Establish minimum capital requirements.
  • Basel II (2007) - Establish global risk management framework (pillars cover min capital reqs / governance / disclosure & market discipline).
  • Basel III (2010 onwards) - Global framework for bank liquidity regulation quality, consistency and transparency of capital definitions.
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12
Q

What is market discipline?

A

Promotion of transparency and disclosure of risks associated with a business / entity. It works it concern with regulatory systems to increase safety and soundness of the market.

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13
Q

What does Liquidity Coverage Ratio (LCR) require Australian ADIs to do?

A

Hold sufficient liquid assets to meet 30-day net cash outflows projected under an APRA prescribed stress scenario.

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14
Q

What does Net Stable Funding Ratio (NSFR) require Australian ADIs to do?

A

Fund their assets with sufficient stable funding to reduce funding risk over a one-year horizon as prescribed by APRA.

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15
Q

What is Leverage Ratio?

A

The percentage of Tier 1 Capital / Total Assets

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16
Q

Why was liquidity an issue in the global financial crisis (GFC)?

A
  • US banking system experienced instability which was transmitted globally.
  • Some countries had excessive levels of debt compared to income, with many banks holding insufficient liquidity (i.e., ability to meet payments).
  • These weaknesses spready rapidly to the rest of financial system and economy.
  • This led to a massive reduction in liquidity and credit availability.
  • In many countries, government had to step in, exposing tax payers to large losses.
  • Australia had less exposure to the types of securities that led to US lenders losing, and lending standards in Australia were not as relaxed as in the US.
17
Q

What three main components of the GFC had a significant impact on Australian banks’ ability to source funds?

A
  1. Drying up of liquidity
  2. Upward repricing due to heighted risk.
  3. Requirement for more capital to meet business and regulatory requirements.
18
Q

Following the onset of the financial crisis, why did global wholesale funding market prices increase dramatically?

A

Investors become reluctant to lend and supply dried up

19
Q

What are 4 ways Australia’s regulators responded to the GFC?

A
  1. Support for domestic depositors (to maintain confidence)
  2. Support for financial institutions to gain access to wholesale banking
  3. Prudential requirements (Basel III)
  4. Customer protection
20
Q

In response to the GFC, the Financial Claims Scheme was introduced by APRA - what does it do?

A

Guarantees deposits held in Australian ADIs up to $250,000 per depositor per institution.

21
Q

After the GFC, how did ASIC help protect consumers?

A
  • Started regulating all consumer credit products.
  • Introduced national licencing scheme for consumer-credit brokers
  • Mandated membership of an external dispute resolution (EDR) scheme
22
Q

Who is the Financial Stability Board (FSB) and what do they do?

A

International body that coordinates the work of national financial authorities and international standard setting bodies.

Develops/promotes regulatory/supervisory financial sector policy.

Plays key role in identification of systematic risk.

Includes all G20 major economies.

23
Q

Who is the Committee on Payments and Market Infrastructure (CPMI) and what do they do?

A

Standard-setting body promoting efficient payment, clearing, and settlement.

24
Q

What is the United Nations Environment Programme (UNEP) and what does it do?

A

Global environmental authority that sets global environmental agenda.

25
Q

In 2014, the United Nations Environment Programme (UNEP) ran an inquiry that resulted in the Principles for Responsible Banking. What are some key principles?

A
  1. Align bank with societal goals.
  2. Set global benchmark for responsible banking (and provide guidance).
  3. Drive/challenge banks to continuously support a sustainable future.
  4. Help banks seize opportunities and provide value for all stakeholders (shareholders, customers, employees, society)
26
Q

What are the purpose, vision, and mission of banks who signed onto UNEP’s Principles for Responsible Banking?

A

Purpose: Transform banking industry to enable it to play leading role in achieving society’s objectives.

Vision: Responsible banking industry that is integral part of society and sustainability.

Mission: Take leadership in achieving shared prosperity for both current and future generations.

27
Q

What are the six Principles for Responsible Banking?

A
  1. Alignment (with individuals and society)
  2. Impact & Target Setting (positive impacts)
  3. Clients & Customers
  4. Stakeholders (consult, engage, partner)
  5. Governance & Culture
  6. Transparency & Accountability

CQIB - Chapter 3 - The Regulatory and Legal Framework (6 decks)

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