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CeMAP Unit 2 > Topic 19 Prudential Supervision > Flashcards

Topic 19 Prudential Supervision Flashcards

1
Q

What is Prudential Regulation?

A

Ensuring that firms have risk management systems in place (particularly in relation to financial risks)

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2
Q

What are the levels of prudential standards?

A
  1. Market to ensure the use of a safe efficient and stable market
  2. Individual firms to minimise the risk of business failure
  3. Individual customers able to work should a company fail
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3
Q

A problem in one economy could cause problems in another

True or False

A

True

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4
Q

What committee sets out prudential regulation of banks globally?

A

The Basel Committee

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5
Q

What does the Basel Committee do?

A

Strengthen the regulation, supervision & activities of banks to enhance financial stability

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6
Q

What does the Bank for International Settlements do?

A

Oversee the Basel Committee

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7
Q

What is Capital Adequacy?

A

Capital as percentage of risk adjusted value of assets

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8
Q

Capital in the context of capital adequacy is often referred to as the funds of the business

True or False

A

True

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9
Q

If a loan is written off it is the responsibility of who

Depositors or the Shareholders

A

Shareholders

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10
Q

What is Solvency?

A

The extent to which a business’s assets exceed it’s liabilities

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11
Q

What is Solvency Ratio?

A

Capital as a proportion of the value of the bank’s assets

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12
Q

What is Liquidity?

A

The speed at which an asset can be turned into cash

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13
Q

Though solvent a firm does not have enough financial reserves available to meet it’s obligations

Is what?

A

How regulators define liquidity risk

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14
Q

What are the 3 ways a forms assets can provide liquidity?

A
  1. Being sold for cash
  2. Reaching maturity
  3. Providing security for borrowing
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15
Q

How do firms avoid asset and liability concentrations?

A

Ensuring a wide spread of maturity dates

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16
Q

What is Operational Risk?

A

Financial loss as a result of:

  • Failed or inadequate internal processes
  • People & Systems
  • Natural disasters
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17
Q

How are capital requirements measured for operational risks?

A

Average of the firms gross annual income (over 3 years) by 0.15

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18
Q

What capital requirements for operational risk do large institutions with different businesses lines use?

A

Standardised approach (with different multiples for each line)

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19
Q

When did the Basel Committee first issue capital requirements on banks?

A

1988

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20
Q

What does Basel II do?

A

Requires banks to hold levels of capital appropriate to the risk of lending and investment

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21
Q

According to Basel II as risk increases what do banks have to do?

A

Increase capital requirements

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22
Q

Which Pillar of Basel II is this?

Capital requirements detailed in 3 arears.

  1. Credit Risk
  2. Operational Risk
  3. Market Risk
A

Pillar 1

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23
Q

Which Pillar of Basel II is this?

Gives banking regulators more effective supervisory tools for individual components of risk

A

Pillar 2

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24
Q

Which Pillar of Basel II is this?

Set of disclosure requirements so that capital adequacy of a firm can be properly assessed

25
In regards supervision & disclosure of Basel II what must a bank do?
Carry out a "Stress Test" to understand the effects of particular events on a firm
26
What 2 areas does Basel III
1. Regulatory Capital 2. Asset & Liability Management
27
What is the solvency ratio for banks in Basel III?
10.5%
28
What are the 2 main classes of capital according to the regulatory capital section of Basel III?
Tier 1 and Tier 2
29
What regulatory capital tier of Basel III is this? - Capital - Share capital & disclosed reserves
Tier 1
30
What regulatory capital tier of Basel III is this? - Supplementary Capital
Tier 2
31
The risk rating of a banks assets is not determined by the type of assets it's holds? True or False
False Risker assets such as unsecured lending carry a greater risk
32
What is leverage ratio for regulatory capital?
A banks tier 1 capital divided by it's consolidated assets
33
What is the percentage of leverage ratio for regulatory capital in Basel III?
3%
34
What are? Liquidity Cover Ratio (LCR) Net Stable Funding Ratio (NSFR) In relation to Basel III
Ratios that banks must comply with in relation to Asset & Liability Management
35
What are the requirements for Liquidity Coverage Ratio (LCR)?
Liquid assets available to the bank exceed net cash outflows over the next 30 days
36
When was Liquidity Coverage Ratio (LCR) faised in?
Between January 2015 to January 2019
37
What is Net Stable Funding Ratio (NSFR)?
Means that long term financial resources exceed long term financial resources
38
When was Net Stable Funding Ratio (NSFR) effective from?
2018
39
What is the Capital Requirements Directive (CRD)?
Supervisory framework that aims to minimise the effects of a firm failing by ensuring the firm has enough financial resources to cover business activities
40
What is the main purpose of Capital Requirements Directive 5 (CRD 5)?
Governs the renumeration of staff and indentify "Material risk takers"
41
Who does the Total Loss-Absorbing Capacity (TLAC) apply to?
30 banks identified as too big to fail
42
What is the term for the 30 global banks deemed too big to fail?
Global Systematically Important Banks (G-Sibs)
43
What percentage of the resolution group's risk weighted assets (RWA) is currently a requirement for Global Systematically Important Banks (G-Sibs)?
18%
44
What do Solvency 1 & 2 relate to?
The capital requirements placed on Insurance Companies to migate their faliure
45
The European Insurance & Occupational Pensions Authority (EIOPA) is responsible for what in relation to what regarding Solvency 2?
Implementing Solvency 2
46
What are the below? - Reduce the risk of an insurance company being unable to meet it's claims in full - Reduce losses suffered by policy holders should an insurer be unable to meet all claims in full - Establish a system of information disclosure that makes regulators aware of potential problems at an early stage - Promote confidence in the financial stability of the insurance sector
Aims of Solvency 2
47
Which of the 3 Pillars of Solvency 2 is this? Capital requirements & the valuation of assets
Pillar 1
48
Which of the 3 Pillars of Solvency 2 is this? Governance & risk-management requirements
Pillar 2
49
Which of the 3 Pillars of Solvency 2 is this? Disclosure & transparency rules
Pillar 3
50
What does the Solvency Capital Requirement (SCR) consist of for Solvency 2?
- Basic Solvency Capital Requirement (SCR) - Allowance for capital risk
51
What is a Own Risk & Solvency Assessment (ORSA)
A requirement for insurance companies to complete
52
Which Prudential Sourcebook does INSPRU cover?
Insurance and capital requirements
53
Which Prudential Sourcebook does MIFIDPRU cover?
MiFID investment firms
54
Which Prudential Sourcebook does MIPRU cover?
Mortgage & home finance & requirements of capital gains & professional indemnity insurance
55
What does Investment Firms Prudential Regime (IFPR) cover?
Capital requirements post Brexit
56
All the below are what? - Own funds - Concentration Risk - Basic liquid assets requirements - Governance - Risk Management - Disclosure - Reporting
What is covered by MIFIDPRU
57
Which of this is a binding requirement on UK business? - Capital Requirement Directive (CRD) - Capital Requirements Regulation (CRR)
Capital Requirements Regulation (CRR)
58
Which of this is a directive that the UK government has discretion on how it is applied ? - Capital Requirement Directive (CRD) - Capital Requirements Regulation (CRR)
Capital Requirement Directive (CRD)
59
The Prudential Regulation Authority (PRA) is responsible for the regulation of deposit takers, insurers & significant investment firms. True or False
True

CeMAP Unit 2 (11 decks)

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