Financial System, Institutions and Regulation

(i) In Australia, banks have to maintain a capital adequacy ratio (CAR).

Explain, in words, why the regulated ADIs must adhere to the capital adequacy standards. In your answer, provide the figure of the minimum ratio for which banks need to maintain in Australia. (2 marks)

Which Australian financial regulator monitors banks maintaining this CAR? (1 mark)

(ii) Briefly discuss the importance of ethics in financial markets (3 marks)