Topic 19 - Prudential Supervion Flashcards Preview

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Flashcards in Topic 19 - Prudential Supervion Deck (15)
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1
Q

What is prudential management

A

Ensuring firms have adequate risk management in place for financial risk

2
Q

What is capital adequacy

A

Ensuring businesses hold sufficient capital so risk doesn’t involve customers

3
Q

What is Solvency

A

The extent to which businesses assets exceed their liabilities.

e.g. mortgage lenders assets are the loans made to customers. Their liabilities are the funds borrowed to provide the loans

4
Q

What is a solvency ratio

A

As a percentage it’s the capital to match the risk of their assets

5
Q

Liquidity

A

The ease and speed at which an asset can be converted to cash

6
Q

What is operational risk?

A

The risk of loss from failed internal process, people, systems. Could also be external such as natural disasters

7
Q

What are the Basel accords

A

The Basel committee on banking supervision first issued minimum capital requirements for banks in 1988.

The rules set out in the Basel accord were adopted by G10 countries

8
Q

Basel II

A

Published in 2004. Required banks to hold capital which was appropriate to the risk in their investments/practises. Also required banks to carry out a stress test. (3 pillars)

9
Q

Basel III

A

Published in 2010. Covers 2 main areas:
Regulatory capital & asset and liability management

10
Q

Regulatory capital

A

Found in Basel III regulatory capital is the amount of capital bank can hold to meet regulatory requirements.

banks also need a minimum solvency ratio of 10.5%.

11
Q

Asset and liability management

A

Basel III introduced 2 new ratios that banks must comply to achieve Asset and liability management:

Liquidity coverage ratio (LCR): Requires high quality liquid assets must exceed the net cash flow expected over next 30 days.

Net stable funding ratio (NSFR): Requires that long term financial resources exceed long term commitments.

12
Q

What is the capital requirements directive

A

In the EU the requirements of Basel I, II and III are implemented by the CRDs

13
Q

Total loss-absorbing capacity (TLAC)

A

In relation to banks that are systemically important. The TLAC requirements are to bolster the banks capital and leverage ratios, ensuring they can continue sufficiently

14
Q

What is solvency II

A

Published in 2016 by (EIOPA) is at an international level unlike solvency I. The main aims are:

  • Reduce risk that insurance company is unable to meet its claims.
  • Reduce losses by policyholders should insurer not meet claims in full.
  • Establish a system of information disclosure that makes regulators aware of potential problems at an early stage.
  • Promote confidence in the insurance sector.
15
Q

What are the PRA/FCA prudential standards

A

Both FCA & PRA are responsible for establishing rules that translate EU legalisation into practical standards that apply to financial service providers.