Banking Regulation: The Most Important and Popular Definitions-August 2024-www.zdask.com

1. Basel III: A set of international banking regulations that aim to strengthen the resilience of banks and enhance their risk management practices.

2. Dodd-Frank Act: A U.S. legislation that was enacted in response to the 2008 financial crisis, introducing significant reforms to the financial industry, including increased regulatory oversight and consumer protection measures.

3. Capital Adequacy Ratio: A measure of a bank’s capital in relation to its risk-weighted assets, used to assess its ability to absorb losses and maintain financial stability.

4. Liquidity Coverage Ratio: A regulatory requirement that mandates banks to hold a sufficient amount of high-quality liquid assets to cover potential short-term liquidity needs during times of financial stress.

5. Systemically Important Financial Institution (SIFI): A financial institution whose failure could potentially pose a significant threat to the stability of the financial system, leading to widespread economic disruptions.

6. Stress Testing: A process used by regulators to assess the resilience of banks and financial institutions by subjecting them to hypothetical adverse scenarios to evaluate their ability to withstand financial shocks.

7. Anti-Money Laundering (AML): A set of regulations and procedures designed to prevent the illegal acquisition of funds through illicit activities and ensure that banks have robust systems in place to detect and report suspicious transactions.

8. Know Your Customer (KYC): A regulatory requirement that obliges banks to verify the identity of their customers, assess their risk profile, and monitor their transactions to prevent money laundering, terrorist financing, and other illicit activities.

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9. Volcker Rule: A provision of the Dodd-Frank Act that restricts banks from engaging in proprietary trading and limits their investments in certain types of hedge funds and private equity funds.

10. Consumer Financial Protection Bureau (CFPB): An independent U.S. agency responsible for protecting consumers in the financial marketplace by enforcing regulations and providing educational resources.

11. Financial Stability Oversight Council (FSOC): A U.S. regulatory body tasked with identifying and addressing potential risks to the stability of the financial system, particularly those posed by systemically important financial institutions.

12. Resolution Authority: The power granted to regulatory authorities to intervene and resolve the failure of a financial institution in an orderly manner, minimizing the impact on the broader financial system.

13. Credit Rating Agencies: Independent organizations that assess the creditworthiness of issuers of debt securities and provide ratings that help investors evaluate the risk associated with investing in those securities.

14. Market Risk: The risk of financial loss arising from adverse movements in market prices, such as interest rates, exchange rates, and commodity prices.

15. Operational Risk: The risk of loss resulting from inadequate or failed internal processes, systems, or human errors, including fraud, cyber-attacks, and disruptions to business operations.

16. Compliance Risk: The risk of legal or regulatory sanctions, financial loss, or damage to a bank’s reputation resulting from non-compliance with laws, regulations, and industry standards.

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17. Capital Conservation Buffer: A regulatory requirement that mandates banks to maintain an additional capital buffer above the minimum capital requirements, providing a cushion during periods of financial stress.

18. Systemic Risk: The risk of widespread disruptions to the financial system, arising from the interconnectedness of financial institutions and the potential for contagion effects.

19. Insider Trading: The illegal practice of trading securities based on material non-public information, giving individuals an unfair advantage over other market participants.

20. Market Abuse: The manipulation or exploitation of financial markets, including insider trading, market manipulation, and dissemination of false or misleading information.

21. Prudential Regulation: Regulations aimed at ensuring the safety and soundness of financial institutions, focusing on capital adequacy, risk management, and governance.

22. Conduct Risk: The risk of financial loss or reputational damage resulting from inappropriate or unethical behavior by individuals or institutions, such as mis-selling financial products or engaging in market manipulation.

23. Derivatives: Financial contracts whose value is derived from an underlying asset, such as stocks, bonds, commodities, or currencies. They are used for hedging, speculation, and risk management purposes.

24. Shadow Banking: Financial activities conducted by non-bank entities that perform similar functions to traditional banks, but are not subject to the same regulatory oversight.

25. Insider Threats: The risk of internal employees or trusted individuals misusing their access privileges to commit fraud, theft, or other malicious activities within a financial institution.