Regulation of the financial sector

What kind of system does the UK use

Tripartite

What three organisations regulate the financial market

• Financial Policy Commitee

• Prudential Regulation Authority

• Financial Conduct Authority

Why was the Financial Policy Committee made

Avoid systemic risk after the financial crisis. They monitor the entire financial sector

What does the FPC do in relation to the pra AND fca

Instruct the PRA and FCA in tackling issues e.g. bank regulation

What does the FPC do in relation to the government

Advice the government if they have seen potential systemic risk or necessary bank bail outs

What are stess tests

The enacting of the worst case scenario in te financial sector to test banks

What does the PRA do

Micro regulator targeted to maintain stability of banks. They specify ratios and reserve requirements

What is the capital ratio

Measures a banks core capital against its ris weighted assets

What is a liquidity ratio

Shows a company’s ability to pay its short term debts using readily convertible assets indicating cash flow strength

What do the FCA do

Micro regulator to increase confidence and protect consumers.

• Supervise conduct of firms/markets

• Maintain competition

• Banning demerit products

• Banning misleading adverts

What is moral hazard

When banks take excessive risks because they expect to be bailed out or protected by the government