Chapter 02

Question 1

Central banks

Answer 1

• implements/manages country’s monetary policy, money supply, interest rates
• in many countries, also oversees commercial banking and pmt systems
• Examples
  
  • European Central Bank (ECB)
  • Bank of England
  • Fed Reserve Bank (US)
  • People’s Bank of China

Question 2

Fin. Stability Board (FSB)

Answer 2

• coordinates w/ int’nl fin. authorities and standard-setters
• develops and promotes regulatory, supervisory, and other fin. sector policies

Question 3

Bank for International Settlements (BIS)

Answer 3

• principal center for cooperation beween int’nl central banks and other agencies pursuing monetary and financial stability
• collects, compiles, and disseminates econ. and fin. statistics
• HQ in Basel
• world’s oldest int’nl fin. institution

Question 4

Bretton Woods Agreement

Answer 4

• post WWII rules governing $ relations btwn. world’s major financial powers
• est’ed. Int’nl Monetary Fund (IMF) and Int’nl Bank for Reconstruction and Development (IBRD) – both now part of the World Bank

Question 5

Basel Committee on Banking Supervision (BCBS)

Answer 5

• Objectives:
  
  • reduce systemic risk (more resilient banks)
  • enhance understanding of key supervisory issues
  • improve quality of banking supervision WW
• Published Basel I-III

Question 6

Group of Governors & Heads of Supervision (GHOS)

Answer 6

• governing body of Basel Committee
• central bank governors + non-central bank heads of supervision from member countries

Question 7

Basel I - III

Answer 7

Basel I (G10s implemented in 1992)

• min capital ratios for large banks, per credit risk of bank’s various assets
• originally “1988 Basel Capital Accord”

Basel II (3 pillars) (2004)

• min. capital requirements (addressing credit and operational risks)
• supervisory review (framework to address/evaluate risk)
• mkt. discipline (req’d disclosures re: risk metrics, capital adequacy)

Basel III (2011-2018)

• stress-test and shock-absorption (i.e. to improve banking sector’s ability to absorb shock from fin and econ stress, etc)
• improve risk mgmt. and governance
• stronger bank transparency and disclosures

Question 8

Committee on Global Fin. System (CGFS)

Answer 8

• int’nl central bank forum
• monitors and examines broad issues re: fin. mkts. and systems
• elaborates/recommends policy to support central banks’ stability efforts

Question 9

Committee on Payment & Settlement System (CPSS)

Answer 9

• sets standards for payment and securities settlement systems
• int’nl central bank forum: to monitor/analyze system developments (domestic pmt, settlement, and clearing), x-border and multicurrency settlement schemes

Question 10

European Payments Council (EPS)

Answer 10

• coordinates and makes decisions re: payments, for European banking industry
• purpose: support/promote SEPA (e.g. develop pmt. schemes and frameworks for integrated euro payments mkt, define common positions for cooperative space of pmt. svcs.)

Question 11

Single Euro Payments Area (SEPA)

Answer 11

European Union (EU) initiative to integrate/simplify pmt. processes and standards throughout euro area

• create single-set of European pmt. schemes (i.e. integrate existing nat’nl credit xfer and direct debit schemes); step towards Euro = single, fully operational ccy.
• create uniform standard for card pmts. across nat’nl borders (i.e. a consistnet consumer experience, to make/accept card pmts. throughout euro area)
• incentivize/increase electronic pmt. usage (via standard practices)

(framework in Payment Svcs. Directive (PSD))

Question 12

European Securities & Markets Authority (ESMA)

Answer 12

• indep. EU authority
• helps safeguard EU fin system/stability and protect investors
• securities mkts’ integrity, transparency, efficiency, and functioning
• partly responsible for EMIR

Question 13

European Mkt. Infrastructure Regulation (EMIR)

Answer 13

• European Parliament and Council adopted in 2012
• to increase stability of OTC derivatives mkt. throughout Europe
• reporting and clearing obligations similar to US’ Dodd-Frank

Question 14

Int’nl Association of Deposit Insurers (IADI)

Answer 14

enhanced efficacy of deposit insurance systems WW

• promotes/guides int’nl. cooperation
• members rsrch. and guide other members seeking to est./ improve deposit insurance syst.
• to increase depositor confidence, reduce “bank run” risk (more stable)

Question 15

Int’nl Org of Securities Commissions (IOSCO)

Answer 15

• int’nl standard-setter for securities mkts
• provides comprehensive technical assistance to members
• aims to est./apply rigorous regs and standards for int’nl securities transactions
• stronger enforcement against offenses

Question 16

Financial Action Task Force (FATF)

Answer 16

• developes/promotes anti-money laundering, terrorist financing
  
  • monitors members’ progress to implement
  • reviews techniques/counter-measures
  • promotes global adoption of appropriate measures
• 30+ member countries (int’nl org)
• est. “KYC” guidelines

Question 17

Int’nl Assoc. of Insurance Supervisors (IAIS)

Answer 17

• int’nl standard-setting group for insurance regulators and supervisory entities
• covers most WW insurance premiums (190 jurisdictions, ~140 countries)
• maintenance of efficient, fair, safe, and stable insurance markets
• benefits/protects policyholders, too

Question 18

Int’nl. Swpas and Derivatives Assoc. (ISDA)

Answer 18

• improve safety and efficiency of world’s swaps and derivatives mkt
  
  • doc. procedures
  • enforceability of netting and collateral provisions
• reduce counterparty, credit, and legal risks
• 805+ members across 67 countries
• created 1985

Question 19

Fed. Reserve REG D

Answer 19

set reserve requirements (re: Fed. Reserve Act 1913)

Question 20

Fed. Reserve REG E

Answer 20

EFT act provisions, consumer protection re: ATMs, ACH, CCs

Question 21

Fed. Reserve REG J

Answer 21

check collection and settlement

Question 22

Fed. Reserve REG J

Answer 22

check collection and settlement

Question 23

Fed. Reserve REG Q

Answer 23

no interest on corp DDAs (per Glass-Sten)

Question 24

Fed. Reserve REG Y

Answer 24

allows specific activities for bank hold cos. and foreign banking orgs. operating in US

Question 25

Fed. Reserve REG Z

Answer 25

truth in lending

Question 26

Fed. Reserve REG BB

Answer 26

banks to help credit needs of entire community where they conduct business

Question 27

Fed. Reserve REG CC

Answer 27

expedited funds availability act (speed ck collections, etc.)

Question 28

Fed. Reserve REG FD

Answer 28

"fair disclosure" re: investments and securities (requires public disclosure of non-public info, if shared with certain parties)

Question 29

Fed. Reserve REG Y

Answer 29

allows specific activities for bank hold cos. and foreign banking orgs. operating in US

Question 30

SEC Rule 2a-7

Answer 30

money mkt fund stipulations (e.g. healthy diversification, etc.)

Question 31

Uniform Commercial Code (UCC)

Answer 31

* unform set of US laws over commercial transactions * rights/duties of all parties * statutory definition of commonly accepted biz practices

Question 32

UCC: Article 3

Answer 32

negotiable instruments-- esp. paper-based pmts. to corps (e.g. re: "paid in full" on cks, etc.)

Question 33

UCC Article 4

Answer 33

bank deposits and collections

Question 34

UCC Article 4a

Answer 34

funds xfers

Question 35

UCC Article 5

Answer 35

letters of credit

Question 36

UCC Article 9

Answer 36

secured transactions

Question 37

BK: Ch 7

Answer 37

liquidate firm

Question 38

BK: Ch 9

Answer 38

financially distressed municipality (city, county, state, etc.)

Question 39

BK: Ch 11

Answer 39

biz reorg.

Question 40

BK: Ch 13

Answer 40

personal BK (w/ income source)

Question 41

BK: Ch 15

Answer 41

establishes trustee for BK with companies, assets, individuals, in more than 1 country

Question 42

Volcker Rule

Answer 42

- restricts certain bank investment activities-- specifically proprietary trading (i.e. trading securities on the bank's own acct), hedge funds, and private equity business - after Paul Volcker (chairman of US central bank, 1979-1987)

Question 43

What is "net interest margin" to banks?

Answer 43

- Difference btwn (1) interest rate at which the bank lends to borrowers and (2) interest rate the bank pays to depositors for funds held on deposit - primary source of bank's earnings

Question 44

List 5 specific areas of financial regulation

Answer 44

1. Monitor and manage overall safety of banking system 2. Monetary policy 3. Guidelines to charter banks/other depository institutions 4. Protect consumers (and allocate credit to certain econ. segments) 5. Protect investors purchasing securities through FIs

Question 45

"Seigniorage"

Answer 45

* income derived from central bank issuing currency and providing it to FIs and other investors in exchange for govt bonds * funds central bank's operations or is remitted to the local govt.

Question 46

"Hersatt risk"

Answer 46

* refers to FX settlement risk, esp. between bank counterparties * potential systemic risk caused by failure of one, large int'nl bank between contract execution and maturity/settlement (e.g. FX trades)

Question 47

3 stages of "money laundering"

Answer 47

1. **_placement_** - deposit illegal activity proceeds @ a FI 2. **_layering_** - series of transactions to separate cash from criminal/terrorist origins 3. **_integration_** - create appearance of a legit explanation/source of funds (e.g. donated for a charitable purpose)

Question 48

Dept of Justice (DOJ)

Answer 48

* w/ Fed, reviews/approves bank mergers and hold co. aquisitions * FBI (sub-group) investigates FI fraud/theft, enforces key money laundering legis.

Question 49

Federal Deposit Insurance Corp. (FDIC)

Answer 49

* est. by Glass-Steagall Act in 1933 * protects depositors * provides depisit insurance for covered FIs * supervises select depository institutions * trustee (bank failure) * administers Deposit Insurance Fund (DIF) * backed by full faith and credit of US govt. * covers individuals' DDA/savings deposits \< $250K

Question 50

Financial Crimes Enforcement Network (FinCEN)

Answer 50

* oversees/implements _counter-money laundering_ by criminal/terrorist orgs. * investigates, strategizes, provides intelligence/reports to other law enforcers * serves as the US fin. intelligence unit (FIU) * operates as a bureau of the Treasury

Question 51

Financial Industry Regulatory Authority (FINRA)

Answer 51

independent regulator for securities firms and registered securities reps; purpose: to protects investors, reinforce mkt integrity, and provide compliance/ technology-based services * registers and educates industry participants (brokers, registered investment advisors, etc.) * examines brokerage firms * writes and enforces rules re: fed securities laws * informs/educates the investing public * provides trade reporting and other industry utilities * administers dispute resolution forum created in 2007

Question 52

Financial Stability Oversight Council (FSOC)

Answer 52

* identifies threats to stability and gaps in regs to prevent systemic risks * coordinates btwn fed and state agencies * does NOT make/enforce laws-- only recomends

Question 53

Nat'nl Credit Union Admin (NCUA)

Answer 53

* indep. federal agency * charters/supervises federal credit unions * operates the National Credit Union Share Insurance Fund (NCUSIF)-- insures savings of account holders in all fed (and many state) credit unions, *like FDIC for credit unions*

Question 54

OFAC

Question 55

US Secret Service

Answer 55

* mission: _safeguard nation's fin infrastructure, pmt. systems_ * _handles CC and ck fraud, and ID theft_ * est. in 1865 as anti-counterfeit currency * now, part of Homeland Security

Question 56

Securitie and Exchange Commission (SEC)

Answer 56

* maintain fair/orderly mkt * _regulates/supervises securities sales (stocks, bonds, derivative instruments)_ * requires public corps to disclose all relevant fin info to investors, etc.

Question 57

Bank Secrecy Act

Answer 57

* US legis., est. by FinCEN * _combat money laundering and use of secret, foreign bank accts_ * requires banks to report clients' large/suspicious money xfers * requires any trade/business org. that receives \> $10K cash to file IRS Form 8300 (ID from whom the cash came, to whom, transaction method)

Question 58

Glass-Steagall Act (aka Banking Act of 1933)

Question 59

Gramm-Leach-Bliley Act of 1999

Question 60

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ## Footnote **(Dodd-Frank Act)**

Answer 60

* wide US legis, post '07-'09 crisis * est. * **Fin. Stability Oversight Council (FSOC)** - * oversees fed bank regulators (i.e. OCC, Fed's Board of Governors, FDIC) * monitors systemic risk in fin. systs, recommendations to regulators * **Commodity Futures Trading Commis. (CFTC)** - regulates OTC derivatives w/ SEC (more oversight, to minimize irresponsible practices) * **Consumer Fin. Protection Bureau (CFPB)** - consolidate consumer protection, oversee federal law enforcement re: fair access to credit for individs/communitites; examines/enforces regs for: * student lenders * payday lenders * all mortgage-related business * banks and CUs w/ assets \> $10B

Question 61

EFT Act (1978)

Question 62

Money Laundering Control Act (MLCA) of 1986

Answer 62

* made it a crime to structure transactions to avoid req'd reporting per Bank Secrecy Act (civil and criminal penalties) * Requires FIs to: * establish KYC guidelines * be aware of large-value funds xfers * file currency trans. reports and criminal referrals

Question 63

US PATRIOT ACT (2001)

Answer 63

* extended MLCA obligations to non-bank FIs and non-financial businesses w/ potential for large-value transactions (car, boat, plane, jewelry dealers) * made all foreign banks w/ US accounts subject to US jurisdiction (including power to obtain records and customer info) * US banks: no correspondent accts for "foreign shell banks" (no physical presence in any country) * US CC system operators: not allowed to authorize foreign banks to issue/accept US CCs w/o taking steps to prevent terrorist usage * requires banks' KYC (increased due diligence) * public firms must: * internal controls over fin reporting * audit committee must: * pre-approve audit/non-audit svcs. from auditor * be briefed by auditors on firm's acct'ing and alternative methods * annual reports to include: * code of ethics for sr. officers in annual reports * disclose audit committee financial expert * Form 8-K, if ethics code is waived/changed *

Question 64

"Red Flags Rule"

Answer 64

* Requires FIs and creditors develop/implement _ID theft protection programs_ * document/disclose, per Fair and Accurate Credit Trans. Act of 2003 (FACT) * applies to: most entities regulated by the Fed and NCUA * state/nat'nl banks * state/nat'nl savings and loan assoc. * mutual savings bank * state/fed credit union

Question 65

Foreign Acct Tax Compliance Act (FATCA)

Answer 65

requires US taxpayers to file/report: * annual report of all foreign fin accts and offshore assets requires foreign fin institutions to report: * fin accts held by US taxpayers * foreign entities substantially owned by US taxpayers

Question 66

Report of Foreign Bank and Fin Accts (FBAR)

Answer 66

Requires US persons/businesses to file a report if BOTH: * was a signer or had a fin. interest on/in a bank acct outside the US * acct(s)' aggregate value \> $10K *_at any time throughout the yr._*