Right, which of the below are key tools that regulators have at their disposal to regulate banks? First one up. All banks need a special permission in order to do banking business. Is this a tool that regulators have at their disposal? Yes, it is. This would be called a bank license, of course. All banks must be licensed by a national regulator, and sometimes, on top of that, also by a state or regional regulator. So this one is definitely true. Next one up. Regulators will require banks to have bigger capital reserves, the riskier businesses they are involved in. Well, this is of course, also definitely true. And why is that? Well, regulators require banks to have risk buffers that are proportionate to the risk of the business. What about the next one? Regulators will require banks to make significant disclosures regarding their financial position and their business. Well, this refers to market discipline. The aim here is for creditors to be able to make a risk assessment of the bank based on information that the bank has disseminated to the public. So this is another true statement.

And then finally, the regulator will sentence irresponsible bankers to prison sentences. Well, this one is false.

And why is that false? Well, first of all, the regulator itself cannot sentence anyone to anything. And, secondly, this is not a key tool of bank regulation. Regulation generally focus on prevention, rather than punishment.