Financial regulation

• Governments might regulate banks to ensure the behaviour of banks is clear to institutions and individuals who conduct business with the bank
• The UK banking industry is regulated by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA)
• The FCA regulates financial firms to ensure they are being honest to consumers and they seek to protect consumer interests
• The FCA also aims to promote competition which is in the interests of consumers
• The PRA promotes the safety and stability of banks, building societies, investment firms and credit unions and ensures policyholders are protected
• The Financial Policy Committee (FPC) regulates risk in banking and ensured the financial system is stable. It clamps down on unregulated parts and loose credit
• There are risks involved with lending long term and borrowing short term. Banks may lose money on investments and if there are insufficient funds in a vault, banks might not be able to provide depositors with money when it is demanded
• Systematic risks are the risk of damage of the economy or the financial market and can be seen as a negative externality. Eg the risk of the collapse of a bank
• A liquidity ratio is used to determine how able a company is to pay off short-term obligations
• The higher the liquidity ratio, the greater the safety margin of the bank
• A capital ratio is a comparison between the equity capital and risk weighted assets of a bank
• Assets have different weightings - physical cash has zero risk whereas credit carries more risk
• The central bank (the Bank of England) managed the currency, money supply and interest rates in an economy
• The Bank of England controls the base interest rate
• The central bank provides services to the government. It collects payments to the government and makes payments on behalf of the government. It maintains and operates deposit accounts of the government and manages public debt and issues loans
• The central bank provides services to the government. It collects payments to the government and makes payments on behalf of the government. It maintains and operates deposit accounts of the government and manages public debt and issues loans
• The Bank of England is considered to be the lender of last resort
• If there is no other method to increase the supply of liquidity when it is low, the bank of England will lend money to increase the supply
• The world bank can loan funds to member countries and it's aim is to promote economic and social progress by raising productivity and reducing poverty
• The IMF aims to promote monetary cooperation between nations and monetary problems can be consulted in the institution
• The IMF aims to help free trade globally and promoted exchange rate stability. It tries to avoid competitive depreciations in the currency
• Members can borrow from the IMF eg if they need to correct and imbalance in the balance of payments
• External debt is the amount of money owed to foreign lenders