CBI Exam Notes: Chapter 5- The Legal and Regulatory Environment Questions and Answers
1 view 0 purchase
Module
CBI 1
Institution
CBI 1
CBI Exam Notes: Chapter 5- The Legal and Regulatory Environment Questions and Answers
What are the examples given by the Bank of England in regards to the reasons that banks fail? - Answers- They make poor investment decisions and not enough profits
- People and companies who have put their mon...
CBI Exam Notes: Chapter 5- The Legal and
Regulatory Environment Questions and
Answers
What are the examples given by the Bank of England in regards to the reasons that banks fail? -
Answers✓✓- They make poor investment decisions and not enough profits
- People and companies who have put their money in a bank account take it out quicker than the
bank can manage. This is what happens in a 'bank run'
What happens during a 'bank run' - Answers✓✓People and companies who have put their money
in a bank account take it out a lot quicker than the bank can manage
What do regulations help with in regards to banks? - Answers✓✓Regulation helps to reduce
many of the problems that could get a bank into financial difficulty. Although, there is no
guarantee that even well-regulated banks will never fail, regulation should mean that there will
be fewer bank failures in the future.
What do regulations set out to do? - Answers✓✓- Ensure that banks have good management to
reduce chances of bad investment
- Ensures banks hold sufficient capital to act as a shock absorber against unexpected losses
- Used in large UK banks to 'ring-fence' some services from other parts of the banks
Why can banks not regulate themselves? - Answers✓✓- Banking is a risky business and, despite
managers and owners understanding these risks, bank's are set out to make profit. When seeking
to make profit, they may not act as safely as depositors and investors would like them to.
- Also, if banks were to look after themselves, it might not think about how their actions could
affect other banks, the financial system, and wider society.
In regards to banking regulation, what does regulation mean? - Answers✓✓Regulation refers to
the setting of specific rules of behaviour that financial institutions have to abide by. These rules
may be set through legislation (laws) or be stipulated by the relevant regulatory agency.
In regards to banking regulation, what does monitoring mean? - Answers✓✓Monitoring of
regulations refers to the process whereby the relevant authority assesses financial firms to
evaluate whether the rules are being obeyed.
In regards to banking regulation, what does supervision mean? - Answers✓✓Supervision is a
broader term used to refer to the general oversight of the behaviour of financial firms.
What are the 3 main types of regulation? - Answers✓✓- Macro-prudential (systemic) regulation
- Micro- prudential (prudential) regulation
- Conduct of business regulation
What is macro-prudential (systemic) regulation? - Answers✓✓Systemic regulation is concerned
primarily with the safety and soundness of the financial system. I covers all public policy
regulation designed to minimise the risk of bank runs.
What is macro-prudential supervision? - Answers✓✓Macro-prudential supervision is concerned
with the aggregate effect of the actions of individual banks. It is also known as top-down
supervision
What is micro-prudential (prudential) regulation? - Answers✓✓Prudential regulation is mainly
about consumer protection. It relates to the monitoring and supervision of financial institutions,
with particular attention being paid to asset quality and capital adequacy. Prudential regulation
rules require financial firms to hold sufficient capital and have adequate risk controls in place
What is micro-prudential supervision? - Answers✓✓Micro-prudential supervision checks that
individual financial firms are complying with financial regulation. It involves the collection and
analysis of information about the risks that firms take, their systems and their people. It is also
know as bottom-up supervision
What is the purpose of conduct of business regulation? - Answers✓✓Its purpose is to protect
customers from harm, preserve and enhance the integrity and orderly operation of financial
markets, and otherwise serve the public interest.
What is conduct of business regulation about? - Answers✓✓Conduct of business regulation is all
about disclosure of information, fair business practices, and the honesty, integrity, and
competence of financial institutions and their employees.
What does conduct of business regulation focus on reducing the likelihood of? - Answers✓✓In
general, conduct of business regulation focuses on establishing rules and guidance to reduce the
likelihood of:
- consumers receiving bad advice
- supplying institutions becoming insolvent before contracts mature
- contracts turning out to be different from what the customer was expecting
- fraud and misrepresentation taking place
- employees and financial advisers acting incompetently
- insider trading
- money being laundered
What is the role of the central bank? - Answers✓✓A central bank is a financial institution that is
responsible for overseeing the monetary system for a nation, or group of nations, with a view of
fostering economic growth without inflation.
What is inflation and how does it affect us? - Answers✓✓Inflation is the increase in the prices of
goods and services over time. As prices rise, our money buys us less. If our cost of living
increases, then our standard of living decreases
What is the key functions of a central bank? - Answers✓✓1. control the issue of notes and coins
2. control the amount of credit money created by banks, that is, the money supply
3. have some control over non-bank financial intermediaries that provide credit
4. use monetary policy to control credit expansion, liquidity, and the money supply of an
economy
5. oversee the financial sector to prevent crises
6. act as a lender of last resort (LOLR) to protect depositors, prevent widespread panic
withdrawals, and otherwise prevent damage to the economy caused by the collapse of financial
institutions
7. act as the government's banker
8. act as the official agent to the government in dealing with all its gold and foreign exchange
matters
What is the mission statement of the Bank of England? - Answers✓✓'To promote the good of
the people by maintaining monetary and financial stability'
What are the 4 main roles of the Bank of England? - Answers✓✓1. regulates other banks
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Themoon. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for £16.33. You're not tied to anything after your purchase.
