Banking Union and BRRD Quiz

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Questions and Answers

Which definition describes the sale of business tool under the BRRD?

The transfer of all/part of assets/liabilities to asset management vehicles controlled by public authorities (correct)

The transfer of all business operations to a subsidiary

The transfer of shares to a newly established financial entity

The transfer of shares or of all/part of assets/liabilities to a bridge institution (correct)

An alternative investment fund (AIF) is best described as which of the following?

An insurance product for investment management

A type of venture capital exclusivity

A collective investment undertaking that raises capital from a number of investors for investment according to a defined policy (correct)

A fund that requires strict authorization under the UCITS Directive

Which option is not a resolution tool under the BRRD?

Asset separation tool

Bail-in

Bail-out (correct)

Regulatory intervention

Which of the following is not a pillar of the Banking Union?

European harmonized bank insolvency proceedings Signup and view all the answers

What is the primary characteristic of investment firms?

They are legal persons engaged in offering investment services. Signup and view all the answers

Which criterion is not relevant for distinguishing between significant and less significant institutions within the Banking Union?

Total investments in financial markets Signup and view all the answers

Which statement is inaccurate regarding TIER2 capital instruments?

They are more loss-absorbing than Tier 1 capital. Signup and view all the answers

The 'mutual recognition' principle in the banking sector implies what?

An authorization to a credit institution is valid throughout the EU Signup and view all the answers

Identify the option that is not a resolution tool under the BRRD.

Bail-out Signup and view all the answers

Which entities are considered the three pillars of the Banking Union?

Single Supervisory Mechanism (SSM), Single Resolution Mechanism (SRM), and European Deposit Insurance Scheme (EDIS) Signup and view all the answers

Which institution does not issue authorization for credit institutions in the Banking Union?

European Banking Authority (EBA) Signup and view all the answers

Which of the following is classified as an investment service?

Portfolio management Signup and view all the answers

Which of the following is not a requirement for banking activity authorization?

Public reputation of the institution. Signup and view all the answers

What does 'Bail-in' enable resolution authorities to do?

Convert creditor claims into equity instruments. Signup and view all the answers

In terms of credit institutions' risk management, which statement is inaccurate?

There are no legal requirements for risk management processes. Signup and view all the answers

Which of the following is a characteristic of an investment firm?

They are legal persons involved in providing investment services. Signup and view all the answers

Which of the following is not an investment service?

Collecting deposits from the public and making loans Signup and view all the answers

Emergency liquidity assistance can be defined as?

The supply of liquidity to banks provided by the central bank Signup and view all the answers

Which of the following is not correct with reference to Tier 2 capital instruments?

They are more loss-absorbing items than those included in Tier 1 capital Signup and view all the answers

Once an entity is authorized as a credit institution, can the competent authority revoke its authorization?

Yes, subject to the issue of an opinion by EBA Signup and view all the answers

Which of the following is not a component of the European System of Financial Supervision?

The European Parliament Signup and view all the answers

With regard to closed-end investment funds, which of the following sentences is wrong?

Investors can sell their participation back to the fund at any time Signup and view all the answers

With regard to the Single Supervisory Mechanism Regulation, a credit institution has which of the following obligations?

If established in a Banking Union participating country, to comply with the Single Supervisory Mechanism Signup and view all the answers

Which of the following is not a condition for resolution under the BRRD?

Institution having liabilities exceeding €30 billion Signup and view all the answers

What is the primary task of the risk management function in a credit institution?

To ensure that all risks are accurately identified, measured, and reported Signup and view all the answers

Which statement correctly describes the relationship between the risk management unit and operational functions?

The risk management unit must operate autonomously from other operational functions. Signup and view all the answers

Which statement regarding BRRD's applicability to institutions is correct?

BRRD applies to institutions, including credit institutions and investment firms. Signup and view all the answers

What is a main responsibility of the nomination committee in a credit institution?

To periodically assess the knowledge, skills, and diversity of the management body. Signup and view all the answers

Which statement about the BRRD is accurate?

BRRD includes rules for managing resolution of institutions failing or likely to fail. Signup and view all the answers

Which entity is not a component of the European System of Financial Supervision?

The European Parliament Signup and view all the answers

What is implicit about the economic resources granted to the risk management unit?

They should be sufficient to carry out its independent activities. Signup and view all the answers

What does the recovery and resolution system arranged by BRRD emphasize?

Implementing guidance for managing the resolution of failing institutions. Signup and view all the answers

What principle allows credit institutions to operate in other Member States?

Credit institutions can provide services directly from their country of origin. Signup and view all the answers

Which statement correctly defines investment advice?

It is providing personal recommendations regarding financial instruments. Signup and view all the answers

Which statement about closed-end investment funds is incorrect?

Investors can sell their participation back to the fund at any time. Signup and view all the answers

How is the authorization of credit institutions generally processed?

National competent authorities release the authorization rather than the ECB. Signup and view all the answers

Which of the following is a requirement for credit institutions providing cross-border services?

They need to have liabilities exceeding €50 million. Signup and view all the answers

Which service involves buying or selling financial instruments on behalf of clients?

Investment advice. Signup and view all the answers

What is an essential characteristic of closed-end investment funds?

They require investors to hold their shares for specific periods. Signup and view all the answers

Which of the following represents an incorrect notion of credit institutions' service provisions?

They need to disable their services in home countries to operate abroad. Signup and view all the answers

Study Notes

Investment Services and Financial Institutions

Investment services: Execution of client orders, collecting public deposits, and making loans; reception and transmission of financial instrument orders.
Emergency Liquidity Assistance: An increase in capital funded by the government, liquidity provided by the central bank, or liquidity supplied by the ministry of finance.
Tier 2 Capital Instruments: Less loss-absorbing than Tier 1 capital, including specific hybrid instruments and subordinated debt instruments.
Entity Authorization Revocation: The competent authority can revoke an entity's authorization as a credit institution if a significant risk to the financial system is determined by the judicial authority.
European System of Financial Supervision: The system's components include the European Parliament, the European Systemic Risk Board, and European Supervisory Agencies.
Closed-End Investment Funds: Incorrect statements include the ability to sell participation at any time, and the inability to invest in illiquid assets. Investors can sell their participation back to the fund.
Single Supervisory Mechanism Regulation: Credit institutions established within the European Union fall under Single Supervisory Mechanism oversight. Those outside the European Union are under the European Central Bank's supervision. Those in Banking Union participating countries are overseen by the Single Supervisory Mechanism.

Banking Resolution and Crisis Management

BRRD Resolution Conditions: Failing or likely to fail institution, liabilities exceeding €30 billion, and resolution actions being in the public interest.
BRRD Preparation Phase Plans: Liquidation and resolution plans are not adopted in the preparation phase. Recovery plans are.
Business Tool Sales: Transfer of assets/liabilities to asset management vehicles (controlled by public authorities) or to bridge institutions, or to a purchaser under commercial terms
Alternative Investment Funds (AIFs): A collective investment entity raising capital from investors, investing as per a predefined policy, and not requiring authorization under the UCITS Directive
Resolution Tools (BRRD): Bail-in, asset separation, and bail-out are resolution tools.
Banking Union Pillars: The European harmonized bank insolvency proceedings, the Single Resolution Mechanism, and the Single Supervisory Mechanism form the Banking Union's pillars.
Significant Institutions: Significant institutions are distinguished based on the number of branches (exceeding 2000), and a ratio of total assets to GDP (exceeding 20% unless below €5 billion).

Credit Institutions and Banking Union

Mutual Recognition Principle: Banking activity is equally recognized inside and outside the European Union. This enables the use of a single authorization throughout the union.
Banking Union Pillars: The three main pillars are the European Central Bank (ECB), the Single Resolution Board (SRB), and the Deposit Guarantee Schemes (DGSs). Alternately, they can be the Single Supervisory Mechanism (SSM), the Single Resolution Mechanism (SRM), and the European Deposit Insurance Scheme (EDIS).
Investment Services: Portfolio management is an investment service.
Investment Firms: Investment firms are legal entities whose regular business is providing investment services and activities.
Tier 2 Capital: Less loss-absorbing than Tier 1 capital; not a resolution tool under BRRD.
Credit Institution Authorization Requirements: Deposit collection from the public, with a certain minimum capital, as well as qualified and competent personnel are requirements for authorization.
Bail-in Resolution Tool: Writes down creditor claims or converts them into equity to restore failing institution's capital

Specific Statements

Cross-Border Credit Institution Operations: Credit institutions are free to provide services in any member state, originating from their own.
Investment Advice: Includes recommending or acting to buy/sell financial instruments on clients' behalf.

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Description

Test your knowledge on the Banking Union and the Bank Recovery and Resolution Directive (BRRD). This quiz covers definitions, characteristics, and resolution tools relevant to investment firms and financial institutions. Challenge yourself with questions on authorization, TIER2 capital, and more.