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The purpose of the paper is to offer an analytical framework for the Treating Customers Fairly initiative of the Financial Services Authority. The TCF agenda is set in the context of theory of consumer behaviour. The central theme is that retail financial transactions are fundamentally different from most other economic transactions made by retail consumers and to an extent that means the consumer needs to have Trust and Confidence in the products purchased and the suppliers of financial products and services. A distinction is made between different types of products and also between the degree of need for Trust and the extent to which the consumer actually does have Trust and Confidence when making decisions. The inculcation of Trust and Confidence needs to become a central strategic issue in financial firms and can be addressed by initiatives of collective self regulation rather than more prescriptive regulation.

Introduction – Stability of commercial banks is on the back stone of a country’s economy and its development, making bank stability one of the main concerns of financial regulators. The bank stability models for large and small economies differ significantly.

Purpose – In this chapter we examine the determinants of bank stability in a small post-transition economy, based on the case of Latvia. Latvia has a well-organized banking system, providing a wide range of services to local and international customers. Besides, the Latvian banking sector is quite unique in Europe as it comprises two sets of banks with radically different target groups of customers and sources of revenue.

Methodology – To carry out this study we analysed panel data of the quarterly financial statements of Latvian banks operating during the period 2012-2017.

Findings – We found evidence of a negative significant relationship between size and bank stability, negative significant impact of liquidity risk on bank stability, a positive significant relationship between capital adequacy and bank stability, as well as a positive significant relationship between credit risk and stability. These results increase the importance of a sufficient level of capital adequacy ratio and liquidity to maintain bank stability. In general, the results of the study confirm the results of other studies on bank stability of small economies, with some exceptions due to the unique situation in term bank business models applied by Latvian banks. The current study provides valuable policy implications to small post-transition economies and stakeholders in general.

This chapter, by virtue of a generalized specification, examines the equilibrium growth paths under two distinct scenarios, namely, a small open economy and a small semiopen economy in a two-sector, endogenous growth model of money. We show that these two scenarios end up with very different characteristics of equilibrium and the steady-state effects of inflation targeting (IT). In a small open economy, there is a nonbalanced-growth path equilibrium (hence, great ratios are nonstationary), while in a small semiopen economy there is a balanced-growth path equilibrium (great ratios are stationary). This provides a convincing reconciliation of the discrepancy in the empirical literature on great ratios. In addition, our steady-state analysis implicitly suggests that a lower inflation target gives rise to a positive GDP growth effect only for those IT countries which are more open to international trade. This enables us to explain why IT countries are relatively open to the international market and why some IT countries with a high degree of trade openness continuously lowered their inflation targets in the 1990s.

This chapter reviews developments concerning central bank digital currencies (CBDCs). It introduces, analyzes, and discusses the potential implications of CBDCs on the existing cryptoassets landscape. The chapter also provides an overview of the different approaches to adopting and implementing this new form of money. Additionally, it compares traditional cryptocurrencies, privately issued stablecoins, fiat currencies, and CBDCs. Although vastly divergent opinions exist on digital money’s purpose, benefits, and use cases, CBDCs can provide opportunities for innovation and experimentation at a central bank and systemic level. CBDCs may pave the way for democratizing access to unbundled financial services while rethinking the overall purpose of money, monetary systems, and global business.

The objective of this work is to analyse worldwide trends in financial supervision architectures. The focus is on the key issue in the debate – the single supervisor versus multiauthority model – in order to build up indexes of supervision unification, essential to perform studies on the causes and effects of various supervisory regimes. First, the paper introduces a Financial Authorities’ Concentration (FAC) Index. A comparative analysis of 69 countries confirmed that an increase in the degree of concentration of supervisory powers is evident in the developed countries, and particularly in the European Union. Secondly, the paper considers the nature of the institutions to which control responsibilities are entrusted. In particular, the role the central bank plays in the various national institutional settings is examined. An index of the central bank’s involvement in financial supervision is introduced, the Central Bank as Financial Authority (CBFA) Index. Each national institutional structure can be identified with the two above characteristics. Two models are the most frequent: (a) countries with a high level of unification of powers and weak central bank involvement (single financial authority regimes); and, (b) countries with a low level of unification of powers and strong central bank involvement (central bank dominated multiple supervisor regimes). A trade‐off therefore emerges between the degree of financial sector unification and the role of the central bank. Two possible explanations of this relationship emerged: the blurring hazard effect and the monopolistic bureau effect.

Although the focus of this issue is on investment in British industry and hence we are particularly concerned with debt and shares, the transactions and holdings in these cannot be separated from the range of other financial claims, including property, that are available to investors. In consequence this article focuses on an overview of the financial system including in Section 2 a presentation of the flow of funds matrix of the financial claims that make up the system. We also examine more closely the role of the financial institutions that are part of the system by utilising the sources and uses statements for three sectors, non‐bank financial institutions, personal sector and industrial and commercial companies. Then we provide, in Section 3, a discussion of the various financial claims investors can hold. In Section 4 we give a portrayal of the portfolio disposition of each of the major types of financial institution involved in the market for company securities specifically insurance companies (life and general), pension funds, unit and investment trusts, and in Section 4 a market study is performed for ordinary shares, debentures and preference shares for holdings, net acquisitions and purchases/sales. A review of some of the empirical evidence on the financial institutions is presented in Section 5 and Section 6 is by way of a conclusion. The data series extend in the main from 1966 to 1981, though at the time of writing, some 1981 data are still unavailable. In addition, the point needs to be made that the samples have been constantly revised so that care needs to be exercised in the use of the data.

This paper examines the implications for bank regulatory and monetary policy of the business cycle; the nature of which is being transformed by the forces of globalisation and the communication and information technology revolution. Asset price fluctuations and overinvestment appear to have become more common, and ‘cheap money’ has been a causal factor. More risk‐related ‘Basel’ bank capital adequacy requirements, combined with more rigorous bad loan provisioning policies and ‘marking to market’ will result in bank regulation amplifying cycles. Hence, monetary policy must be closely coordinated with bank regulation policy to attenuate the cycle and the impact of asset price fluctuations.

The developments in modern portfolio theory have had a significant impact on the literature in the area of investment management and whilst many investment analysts have still to be convinced of the merits of the beta of a stock, the principles of diversification within a portfolio of ordinary shares are generally accepted. Investors, however, whether institutional or as individuals, generally hold diversified portfolios across a variety of asset classes. Although the literature here becomes a lot thinner, there are broadly two main approaches. There is what we can refer to as the “traditional” approach which develops a single period model of the Tobin‐Markovitz type. The hallmark of these is the analytical rigour they pursue with a range of simplifying assumptions and the bulk of work on banks and more recently life insurance companies has been based on this approach. The alternative approaches which permit the inclusion of institutional facets of behaviour that appear to determine their behaviour are referred to as ‘ad hoc’ models because they utilise various aspects of the ‘traditional’ portfolio model, including “stock” as well as pure “flow of funds” models. Work on life insurance companies and building societies has been performed utilising such approaches.