| How Regulated were Financial Markets during 1980s to 2008? | -Regulation was quite Loose. This was due to the Deregulating Financial Process in the mid 1980s known as the Big Bang
-Less Regulation had Contributed to more Profitability
-But it also led to Mass Financial Stability and Market Failure. |
| What were the Market Failures and Instabilities during the 1980s to 2008? | -Excessive Risk Taking: Investment Banks made many Financial Risky Investments - Dot.com Firms
-Commercial Banks getting Involved with Investment Banking Activities which led to an overall Meltdown in 2008
-Fraud and Illegal Activity had been Brewing - such as Market Rigging
-Growth of Market Bubbles in the House Market made Worse by the Overprovision of Credit |
| What does the Regulation on Financial Markets focus on? | -Competition - Making the Financial Markets Benefit the Consumers
-Structure of Firms and Risk Management: Making sure the Market is Stable and not going to Collapse. Making Accountability a Key Feature
-Strengthens Rules and Principles, and sets up Tough Punishments if so
-Systematic Risks - Identify them early enough and Managing them Accordingly |
| What are the Capital and Liquidity Ratios? | -Capital Ratio will measure the Bank's Capital to Loans. It gives a Measure of Risks Attached with the Bank's Lending and the Banks Stability
-Liquidity Ratio measures the Highly Liquid Assets to the Short Term Needs for Cash. Also gives an Idea of Bank Stability |
| What are Microprudential Regulation and Macroprudential Regulation | -Micro ensures that Individual Firms do not take Excessive Risks and Break the Law. Also ensures Firms treat Failure towards Consumers
-Macro tackles Systemic Risks in the Financial System, as well as avoiding Large Scale Financial Crisis |
| What International Agreements have been made on Financial Markets? | -The Basel Committee have set up Recommendations on Minimal Liquidity and Capital Levels for Banks. This is in the Focus of Increasing the Financial Stability of them |
| What is Ringfencing? | -Ringfencing refers to keeping the Commercial Banking side Separate from the Investment Banking Side. Since 2019, the UK Banks with large Commercial Activity can not use the Deposits of Customers and Small Firms to finance Investment Banking Activities |
| Why may Regulation lead to Drawbacks? | -Regulation in general has Setbacks, and Regulators may be Captured - Swayed and turning a Blind Eye
-If the Regulation is too Strict, then Credit may be Restricted leading to Slow Economic Growth. Furthermore, the Shadow Banking System may Develop |
| In the UK, who is Responsible for Regulating Financial Markets? | -The Bank of England and the Financial Conduct Authority |
| What does the Financial Policy Committee do? | -The FPC is a Macroprudential Regulator
-They Identify, Monitor and Protect against Systemic Risks
-Issue Instructions to the PRA and FCA to Tackle Problems in the Financial System
-Advise the Government on Managing the Financial Markets |
| What does the Prudential Regulation Authority do? | -The PRA is a Microprudential Regulator
-They Supervise Firms and Financial Institutions to ensure they Successfully Manage Risk
-Set up Industry Standards for Conduct and Management
-Specify Capital and Liquid Ratios for Financial Institutions |
| What is the FCA? | -The Financial Conduct Authority is a Micropruendital Regulation that aims to Protect Consumers and Increase Confidence in the Financial System by:
-Supervise the Conduct of Firms and Markets - Make it legal and Fair
-Promote Competition in Financial Markets to Better Deals are Provided for Consumers
-Banning Financial Products that do not Benefit Consumers
-Banning/Forcing Firms to Change Misleading Adverts for Financial Products and Services |
