Assignment 2B: The Regulation of Financial Institutions
Learning Outcomes assessed by ACFI7012 Financial Markets & Institution Assignment
● Exhibit a thorough understanding of the main theoretical frameworks which have been used to analyse developments in financial markets and of their key assumptions and methodologies
● Demonstrate skills of critical appraisal with regard to the evidence put forward to validate theoretical approaches
● Apply the theoretical and empirical knowledge obtained in the module to the analysis of the impact of financial markets and institutions on businesses using funds and the regulatory issues which arise from this impact
● Demonstrate an ability to apply academic knowledge and skills in practical contexts.
● Demonstrate an ability to engage in problem solving in ways appropriate to both participants in & regulators of the financial system.
● Demonstrate an ability to apply formal modelling techniques in the context of financial theory
Objectives of ACFI7012 Financial Markets & Institution Assignment
Assignment 2B concerns over-arching themes from your Module. It requires you to assess, analyse, synthesise and reflect upon key themes through the Semester including the following:
a. The rationale for financial market regulation; b. The structure of financial market regulation including both supervisory and prudential approaches; c. How the 2008 financial crises may be explained from a theoretical perspective; and d. the role of government as a “safety-net”
and supporter of systemically important institutions. The Assignment involves answering a large open-ended question requiring mature reflection and interpretation, weighing different perspectives and alternative points of view. It is expected for you to utilise relevant readings
from academic and professional journals to support your argument in a clear and lucid narrative. The essay is marked on the basis of 100% and counts 40% towards your overall grade for the module.
Background: In this module we have discussed the basis for financial market regulation and the inadequacies which precipitated the most recent financial crisis. Since the Financial Crisis of 2008, major changes have been made in how banks are regulated. Most notably, we saw the Bank for International Settlement Accords of 2010-2011 (Basel III) and the further changes to international banking standards in 2016 and 2017, known as the Basel IV. Critics of the new regulations argue that (a) the additional capital requirements may discourage economic growth, (b) stress tests are not realistic, (c) detailed rules may encourage regulatory arbitrage and (d) all regulation is inherently reactive and not able to address emerging challenges.
With above critique in mind, evaluate the state of financial market regulation focusing upon the United Kingdom. Supported by appropriate references, in your evaluation, it is expected that analysis and synthesis of the following issues are undertaken:
- The main provisions for the various Bank for International Settlement inspired regulations, starting with the first one (“Basel I”) through to today’s Basel IV.
- What policy objectives Basel inspired regulations have been designed to support?
- How have regulations evolved over the years, how has the focus upon capital, liquidity, asset quality, risk-taking and leverage evolved?
- How has the mix of supervisory, prudential at micro and macro levels, changed with the various Bank for International Settlement inspired regulations?
- In your view, what remains to be done? What is about right and what could be improved?
- In your view what might lead to future crisis and what should be done preventively.
In sum, with an eye to policy objectives, you should present a reasoned argument on the state of financial market regulation in the UK and whether alternatives or other changes could be considered what those might be.
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