Please enable JavaScript.

Coggle requires JavaScript to display documents.

regulations (regulation (Current issues (Government safety net: Deposit…

- - - - concentration and diversification rules and prudential ratios
      - restrictions on holding certain assets
  - - - better information reduces both moral hazard and adverse selection
      - stringent reporting requirements for financial intermediaries
        
        they bookkeeping must follow certain strict principles
        
        the books are subject to periodic inspection
        
        they must make certain information available to the public
    - - regulation z
        
        "truth in lending" consumer protection act 1969 and Fair Billing Act in 1974 requires full disclosure of exact financing terms on comparable basis (APR)
      - regulation b
        
        Equal Credit Opportunity act 1974/1976 and Community Reinvestment Act 1977 to prevent discrimination and redlining
  - - - CAMELs ratings
        
        Management
        
        Earnings
        
        Asset quality
        
        Liquidity
        
        Capital adequacy
        
        if rating is too low, the bank regulators can issue a 'cease and desist' order to the bank to change its behaviour or close the bank
        
        risk management is given a separate rating that feeds into the management portion
      - focus on processes and new emphasis on risk management: 4 elements
        
        quality of board and senior management oversight
        
        adequacy of policies limiting risk safety
        
        quality of risk measurement and monitoring
        
        adequacy of internal controls to prevent fraud
  - - - Limits on interstate branching
    - - preventing non banks from competing with banks
  - - - require banks to maintain certain prudential ratios such as liquidity ratio, cap adequacy ratio, reserve requirement and others
      - require some form of liquidity or reserve requirements
        
        Liquidity ratio: no reserve requirement in HK but there's a 25% min liquidity ratio
        
        reserve requirement: banks are required to hold 10% of the amount of transaction deposits in cash or reserves at the FED
    - - Banks are required to hold a certain level of capital (book equity) that depends on the type of assets the bank holds
        
        reduces moral hazard; in US higher capital means more collateral for FDIC
      - 3 types of capital requirement in US
        
        Leverage Ratio
        
        bank capital/total assets must be greater than 5%
        
        Capital adequacy ratio
        
        (BIS or Basel I/II/III)= capital/ total risk weighted assets and other risk related exposure but be greater than 8% with tier 1, capital must be greater than 4%
        
        Capital requirement on trading activities
        
        (Basel 1996 Market Risk Amendment) for banks engaging in trading activities, based on the bank's own models, calculate max loss over ten day period and provide additional capital (tier 3) covering 3 times that amount
  - - - Deposit insurance provides protection for depositor and can increase confidence in the banking system
      - can create moral hazard if implemented in an environment with weak institutions
      - problem of too big to fail doctrine
      - another form of safety net is government support to depository institutions
        
        significant moral hazard
        
        common in many emerging markets
        
        current issue:bank ratings
      - funding or liquidity support from the government can take 3 forms
        
        lender of last resort support to banks experiencing funding difficulties on short term basis
        
        provision of longer term liquidity and or capital support
        
        provision of intraday or overnight liquidity to alleviate short term cash flow shortages
    - - many regulators are headed by former financial industry top staff
      - top regulators tend to leave for a career in the institutions they used to regulate or in the law firms representing them
  - - - est by merger of office of the exchange fund and the office of the commissioner of banking the HKMA is HK's CB
      - functions and objectives
        
        maintain currency stabiloity
        
        promote safety and stability of banking system
        
        enhance the efficiency integrity and development of financial system
        
        managing HK's offical reserves
      - it does not
        
        issue banknotes
        
        act as a banker to the government
    - - The Monetary authority is on his own responsible for achieving the monetary policy objective, including determining strategy, instruments, operational means for doing so, he's also responsible for maintaining stability and integrity of the monetary system in HK
      - current objective is currency stability, achieved through the linked exchange rate system
      - The financial secretary is responsible for determining the MP objective and structure of monetary system in HK
    - - Fintech
        
        trade finance plaform based on distributed ledger techology
        
        Fintech Supervisory Sandbox
        
        open application programming interface
        
        Upgraded version of Fintech career Accelerator Scheme
      - SVFs and VBs
        
        stored value facilities have had a significant growth in the past year, licenses continue to expand their business to reach different sectors (taxis, wet markets etc)
        
        Introduction of Virtual Banking
        
        Faster Payment systemL mobile phone payments
    - - PBOC implements china's first national deposit insurance
      - all deposit taking financial institutions in China excluding branch offices of foreign banks in China will be covered
- - - - regulators get expnaded authority to define which financial firms are systemic
      - corporate end users should monitor the development of rules on over the counter derivatives that could affect their hedging activities
      - The act emphasises stronger consumer and investor protections and begins to address the orderly resolution of large failures in ways that limit losses to taxpayers
  - - - issues with Patriot act
      - Issues with jurisdictional choice
      - Issues with extradition treaties
      - Conflicts with foreign laws
      - f-cubed concept: US courts use the 'conduct and effects' test to accept jurisdiction over cases where foreign shareholder sue foreign companies whose shares were traded primarily through foreign exchange
  - - - to supervise securities firms
    - - supervision of insurance firms
    - - harmonise accounting rules worldwide, set up IASB to implement global standard
    - - BCBS is to supervise international banks
    - - implement a set of global accounting standards
    - - FSF is to identify and take action on vulnerabilities in international financial system, improve coordination, information flows between members
- - - - provide banks with impetus and incentive for enhanced risk measurement and management
      - promote market discipline by the way of improved disclosure
  - - - deals with other risks not covered under pillar 1, requires banks to hold capital to cover these risks and requires supervisors to review banks' capital planning
    - - requires a bank to enhance its public disclosures on its risk profile, capital adequacy and key financial info
    - - sets out minimum requirement for a bank's credit, market and operational risks
  - - - US the only big developed financial market to have delayed implementation at biggest banks until 2009
      - EU clear implementation timetable: 07' to 08'
      - Most asian countries implemented between 07 and 10
- - - - Repos
      - values of
        
        trade finance commitments
        
        SBLCs and guarantees
        
        lending commitments
      - All assets held including cash and liquid assets
      - even if
        
        guarantee or collateral available
        
        netting available
  - - - would require banks to hold a sufficient amount of high quality liquid assets to survive a severe stress for a period of 30 days, outflows can only be met by generating liquidity from high quality government bonds and central bank deposits
    - - measures stable funding relative to the liquidity of the assets funded, and the potential draw on off-balance sheet commitments over a one year period
  - - - will another crisis arise while delay?
    - - each local regulator publishes implementation rules
      - sig divergence of view between diff regulators
- - - - a result of a compromise between the fear of central government and the need of stability in the system, and was designed to give the Fed a broad perspective of the economy
    - - Desin was intended to diffuse power among regions of US, government and private sector industries, and need of bankers, businesses and the public
      - the system now includes 12 FR banks, member banks, a BOG, an open market committee and a federal advisory council
    - - each district has a main FR bank and at least one branch office
      - the banks are quasi public, they aren't govt agencies or private banks
        
        owned bymember commercial banks in the district who collects a 6% dividend
        
        Fed bank presidents are not subject to congressional confirmation(independence from politician)
        
        member banks to elect 6 directors while 3 are appointed by the BOG
        
        Directors represent professional bankers, prominent business leaders and public interest (3 from each group)
        
        class A directors are elected by the member banks and represent them
        
        Class B directors are elected by member banks but represent the public, they cannot be officiers or directors of banks
        
        Class c directors represent the public but are picked by the Fed BOG, they cannot be officers or bank directors and cannot own shares of banks or bank holding companies
    - - larget bank supervuision group in fed system
      - houses the open market trading desk and teh FX desk, key role in bond and FX markets
      - only Fed bank to be a member of BIS
      - Repository of large gold reserves
      - President of NY fed is the only permanent member of FOMC
    - - general
        
        fiscal agent for US govt: clear checks, process electronic payments and issue, redeems and transfer US TSY securities
        
        issue currency
        
        Check Processing for depository insitiution
        
        Electronic payments
        
        Evaluate bank mergers and expansion
        
        lender to member banks
        
        liason between local community and the fed reserve system
        
        perform bank examinations
      - monetary policy
        
        establish the discount rate at which member banks borrow from the FRB at
        
        determin which banks receive loans
        
        elect one member to the Fed Advisory Council
        
        5 of the 12 bank presidents vote in the FOMC
    - - all national banks are required to be members, state commercial banks can elect to join
      - depository Institutions Deregulation and MOnetary Control Act 1980
        
        by 1987 all depository institutions became subject to the same reserve requirements to keep deposits at the Fed and all depository institutions were given access to the Fed reserve facilities such as discount window and Fed check clearing
        
        currently few distinctions between member and non member banks
    - - BOG
        
        7 governors appointed by president, all are members of the FOMC
        
        Effectively set discount rate
        
        sets interest rate the Fed res pays on reserve balances to help implement FOMC's monetary policy
        
        serves in an advisory capacity to the president and represent the US in foreign economic matters
        
        membersVC: Richard Clarida; VC for supervision: Randall Quarles; Governor: Dr Lael Brainard, 3 vacant seats
      - Chair
        
        Jerome Powell
        
        spokesperson for the FR system, negotiates as needed with congress and president
        
        sets agenda for FOMC meetings
        
        no legal authority to exercise control over the system and its member banks
      - open market committee
        
        7 members of the BOG+presiendt of the fed bank of NY+ 4 other fed bank presidents (in turns, the other 7 vote but dont attend). The chair of BOG is also chair
        
        Makes decisions regarding open market operations, to influence monetary base
        
        key focal point of policy making of the fed given the key role of open market operations