Regulation Of The Financial System 2 Flashcards
What is micro-prudential Regulation
Regulation of individual financial firms such as commercial banks, payday lenders and insurance companies
What is macro-prudential Regulation
Designed to safeguard the financial system as a whole
When does market failure occur
When a market fails to deliver an economic efficiency and/or socially equitable allocation of scarce resources
What is moral hazard
When an individual or organisation takes many more risks than they should because of insurance or government protection
When does asymmetric information occur
When one individual or party has much more infamous film than another
Types of market failure within the financial sector
Moral hazard Asymmetric information Monopoly / rigging Speculative bubbles Speculation Externalities Principle-Agent problem Incomplete markets
Market failure of monopoly / market rigging
Collusion or abuse of power resulting from operating in a concentrated market
When do speculative bubbles exist
When the price of something is driven well above what it should be, usually due to the behaviour of consumers
What is speculation
A risky action in which a person/organisation tried to predict what will happen to the price of an asset and buys/sells accordingly to make a profit
When does the principle-agent problem exist
When one person (agent) is able to make decisions on behalf of another person (principle), by the principle is unable to adequately supervise the agent
When does an incomplete market occur
When the available level of supply is not enough to meet the needs and wants of consumers
