Bank supervision and Cash flow insolvent: Difference between pages

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In the UK, the Prudential Regulation Authority (PRA) is the body responsible for the prudential regulation and supervision of banks and similar financial firms.  
An entity is 'cash flow insolvent' when its cash flows and liquid assets, supported by any additional sources of liquidity, are inadequate for it to pay its debts as they fall due.


The PRA is part of the Bank of England.
In the non-financial sector, this is sometimes known as 'commercial' insolvency.




In the Euro zone, the European Central Bank (ECB) regulates the financial stability of banks through its Single Supervisory Mechanism (SSM).
Cash flow insolvency is contrasted with 'balance sheet insolvency', which usually relates to accumulated losses and negative equity.


The ECB has final supervisory authority, with Euro zone member states’ national supervisory authorities providing a supporting role. The ECB directly supervises the 'most significant' banks within each Euro zone member state, with the national supervisory authority directly supervising the other (less significant) banks within its jurisdiction.


The ECB is responsible for:
It is possible for profitable businesses to be cash flow insolvent, for example as a result of 'overtrading' and poor cash forecasting and management.
*Supervisory reviews
*On-site inspections and investigations
*Granting and withdrawing banking licences
*Assessing bank acquisitions
*Ensuring compliance with European Union prudential rules
*If required, setting higher capital requirements to counter financial risks.




In the United States, bank supervision is undertaken by the Federal Reserve System, in Australia by the Australian Prudential Regulation Authority (APRA).
==Banking==
 
Banks generally fund longer term assets with contractually shorter term - but stable - liabilities, including customers' deposits.
 
The cash flow solvency of banks depends on the repeated rolling over - or replacement - of their shorter term liabilities, including deposits.




== See also ==
== See also ==
* [[Australian Financial Regulation]]
* [[Balance sheet insolvent]]
* [[Bank of England]]
*[[Cash]]
* [[Basel III]]
*[[Cash balance]]
* [[Capital adequacy]]
*[[Cash flow]]
* [[Contingent capital]]
* [[Equity]]
* [[European Banking Authority]]
* [[Insolvency]]
* [[European Central Bank]]
* [[Liquidity]]
* [[Euro zone]]
* [[Over trading]]
* [[Federal Reserve System]]
* [[Run]]
* [[Financial Conduct Authority]]
* [[Solvency]]
* [[Financial Services Authority]]
* [[Survival period]]
* [[Financial Services Committee]]
 
* [[Financial stability]]
[[Category:Accounting,_tax_and_regulation]]
* [[Home supervisor]]
[[Category:The_business_context]]
* [[Host supervisor]]
* [[LCR]]
* [[NSFR]]
* [[Pillar 1]]
* [[Pillar 2]]
* [[Pillar 3]]
* [[Prudential Regulation Authority]]
* [[Resolution Authority]]
* [[Supervisory college]]
* [[Total Loss Absorbing Capacity]]
* [[Twin Peaks]]

Latest revision as of 22:49, 18 July 2022

An entity is 'cash flow insolvent' when its cash flows and liquid assets, supported by any additional sources of liquidity, are inadequate for it to pay its debts as they fall due.

In the non-financial sector, this is sometimes known as 'commercial' insolvency.


Cash flow insolvency is contrasted with 'balance sheet insolvency', which usually relates to accumulated losses and negative equity.


It is possible for profitable businesses to be cash flow insolvent, for example as a result of 'overtrading' and poor cash forecasting and management.


Banking

Banks generally fund longer term assets with contractually shorter term - but stable - liabilities, including customers' deposits.

The cash flow solvency of banks depends on the repeated rolling over - or replacement - of their shorter term liabilities, including deposits.


See also