Thursday, 15 December 2011

Bank Regulation for Beginners


I got an excellent comment on another post “Euro summit” from Conrad asking for my view on bank regulation. Conrad is part of the Occupy Wall Street movement, an eclectic group whose objectives I don’t fully understand yet, Conrad has a degree in philosophy and, according to his blog, he is homeless (almost by choice it seems). I can’t claim that I can completely relate to your situation, Conrad, and I don’t exactly know how to pitch this other than just give you a proper introduction into banks and regulation. I have tried to describe in simple terms how banks work, why we need them, and what capital- and liquidity-risk is because without a basic knowledge of this, it is very difficult to understand what could and should be done to improve things.


Banking regulation is important. It is like any relationship, if you don't give your wife/girlfriend/boyfriend or whatever you are into a clear idea of what you are expecting from them, how can you complain when they don't act in accordance with your "unpublicised" expectations? If you read some of my other posts you will probably find that I am quite critical of the regulation and I believe that politicians have been directly involved in creating an environment where risky lending practises were encouraged.

I can't claim to be an expert on the US banks but I am quite intimately involved in the UK and working on finding out what to do with some of these nationalised assets. UK is, although worse off, structurally similar to the US financial sector, so I do think it will provide a pretty good anecdotal story.

In the UK, the government established an Independent Commission on Banking, led by Sir John Vickers, a very prominent figure here. He proposed many things but there were in particular two main suggestions, first to ring-fence a bank’s investment banking and its retail banking activities (means building Chinese walls inside the bank rather than actually breaking them up). Retail banking is what you call it when a bank takes deposits and makes loans to ordinary consumers like you and me. Investment banking is in simple terms when banks are involved with various kinds of trading activities. So Vickers says that we should have a clear separation of these two different areas of banking. What that mean in practice is that banks should not be allowed to use your deposits as funding for their trading activities. I completely agree with this. And I certainly think it is bizarre to complain about bankers bonuses if you keep the structure that mean banks can make big bets with cheap funding. Remember that it is in investment banking you find the big bonuses. So it should not be possible to use retail deposits as funding for investment banking. That will likely make the cost of funding go up a bit, and therefore bonuses go down a bit.

The second is that banks should hold more liquidity and core capital to make them resilient to “shocks” in the market. Core capital is basically shareholders capital, and that is in place to ensure that all deposit holders can get their money, if you liquidate the bank. Basically if you imagine that a bank lend your money to customers that can’t pay back, you obviously have a problem, because there won’t be enough money to pay back everyone’s deposits. My view is that this is also a good idea, but it cannot, as proposed by Vickers, be done unilaterally (by one country alone). It has to be an international agreement otherwise it simply won’t work (more about this later). It MUST also be based on risk profile of the assets a bank holds (i.e. the more risky the loans the higher capital requirement, as opposed to the current regime that is rather inelastic) Otherwise you could actually drive banks to do riskier business by introduction higher capital requirements and I think we have all had enough of that.

If we assume that banks will separate investment banking from retail banking so that it doesn’t pose any systemic risk if investment banks fail, and thus we will just let them fail, we can focus our attention on retail banking and on the liquidity and capital requirements.


If you are one of those people who think it would be better to revert to a natural economy, where Conrad and I would meet somewhere to exchange a jug of goats’ milk for 12 eggs, then I think it is pointless to continue reading. For the rest of us we need a financial system for a number of reasons.

In particular we need to facilitate the transfer of money from surplus units (people or organisations that have more money than they need today) and deficit units (people or organisations that have a need for money to invest today). Likelihood is that we are all surplus and deficit units at different stages in our lives.

The trouble is that you might have £10,000 and need them back next Christmas and I might want £100,000 to buy a house and plan to pay back over 20 years. This discrepancy between the lender’s average balance and the borrower’s average balance and in particular the discrepancy in timing (deposits generally short term, and loans generally long term) is why we need a middleman. We need a bank.


Retail banking is essentially simple, you take deposits from people and you pay them an interest on their deposit. Once you have their money you lend it to other people and they pay you an interest. The difference between the nominal interest you pay and the nominal interest you earn is called the net interest. Retail banking is basically all about making an acceptable net interest.

Okay Conrad, let’s create an example where you and I are running a smallish bank of £10 billion in assets. Our bank is a “good” bank, we keep a low margin and we only lend responsibly to people that we know can afford to pay us back. Quality customers if you like.


Let’s imagine that we have 1 Million depositors with an average balance of £10,000 and we pay them 2% interest per annum.

Interest payable: 1,000,000 * £10,000 *0.02 = £200M


We then lend all the money to 100,000 Borrowers with an average balance of £100,000 and they pay us 3% per annum.

Interest receivable: 100,000 * £100,000 0.03 = £300M

Net interest income equals the interest earned minus the interest paid out to customers.

Net interest income: £300M - £200M £100M

Let’s say that we have annual costs of around £20M.

So if we were completely unregulated and didn’t care about risk we would make a profit of £80 million per year. FYI it’s a pretty pitiful result, but it is just an example.


You might look at the above and think that it looks fairly straight forward but in order to ensure that Mrs Depositor can get her money back when she want to we have to look at two potential risk factors namely, liquidity and capital.


As mentioned earlier there is a discrepancy between Mrs Depositors’ short-term focus and the generally long term perspective of Mr Borrower. If something significant happens in the world (i.e. a super sale on ladies handbags) which means that a lot of depositors choose to withdraw their money at the same time, we can’t tell them to wait 10 years until Mr Borrower has paid back his loan.

So to make sure you can pay back your depositors, the regulators (and any sensible CFO) therefore demand that you always have a minimum amount liquid, or in plain English in cash. This is to protect the customers short term so they can always withdraw their money. This is important. So to the Occupy movement, you can write on your banners “BANKS SHOULD HOLD MORE CASH RESERVES”. But as I’m going to explain a bit later they shouldn’t hold too much either, because that will create other problems. I however don’t know if the less powerful statement “BANKS SHOULD HOLD THE RIGHT AMOUNT OF CASH – NOT TOO MUCH, NOT TOO LITTLE” would work very well as a banner.

The below is taken from the Financial Regulator in the UK if you want to read the official blurb.

"A bank’s role in financial intermediation – transforming the maturity of short-term deposits into longer-term loans – makes it inherently susceptible to the risk that creditors’ demands for repayment may outstrip the bank’s ability to liquidate its assets. So banks rely on ready access to the money and asset markets, where liquidity is reallocated from bank and non-bank participants with surplus liquidity to those with liquidity needs. In an orderly, functioning market, an adequately capitalised bank should always be able to obtain additional liquidity. However, this may be hampered or obstructed by market failures, such as asymmetric information, leading to uncertainty about a participant’s true net worth and creditworthiness. This can occur when the market is uncertain about the primary risks faced by a particular firm or class of firms – such as credit risk, market risk and operational risk – but also because more widespread uncertainty leads a wide range of market participants, including those who would normally be the providers of liquidity, to hoard liquidity due to uncertainty about their own needs. This may severely limit the market’s willingness to reallocate liquidity, at prices which properly reflect the true risks, or even at all

We define liquidity risk as the risk that a firm, although balance-sheet solvent, cannot maintain or generate sufficient cash resources to meet its payment obligations in full as they fall due, or can only do so at materially disadvantageous terms. The corollary is that liquidity risk management means mitigating the risk that a bank is not able to do this. This in turn requires reliable access to enough cash resources, at unpredictable times and to unpredictable extents, to meet uncertain cash flow obligations. Such access – and indeed the cash flow obligations themselves – depends on market and other external events and on other agents’ behaviour. Even during normal conditions this can be far from straightforward; stressed conditions, which are themselves often unpredictable, make it even more challenging and add extra layers of uncertainty to a task already surrounded by uncertainty.

We have three sets of quantitative requirements for three types of deposit-takers. The Sterling Stock regime applies to some UK retail banks and requires banks to hold Bank of England eligible assets to cover their five-day wholesale net outflow and 5% of retail deposits withdrawable over the same period. The Mismatch regime applies to all other banks and aims to assess whether a bank has enough assets to meet its liabilities in different time-bands on a maturity ladder. The Building Society regime requires societies to hold 3.5% of liabilities in high quality marketable assets…"

So what all of the above means that we need to adjust our bank example to keep (at least) 5% of our deposits in cash. Let’s say that we listen to those calling for more liquidity and therefore in our example we put 10% aside.


1 Million depositors with an average balance of £10,000 and we pay them 2% interest per annum.

Interest payable: 1,000,000 * £10,000 *0.02 = £200M


Interest receivable: 100,000 * £100,000 *0.90 * 0.03 = £270M

Net interest income equals the interest earned minus the interest paid out to customers.

Net interest income: £270M - £200M = £70M

With the £20M cost, we are making a £50M profit. I'm sure you noticed that our profit is significantly lower than in the first example.


In addition to the above, we also have to have some money for when shit really hits the fan. If the bank lends money to a large amount of people who can't pay them back, then they might go bankrupt. That we all know was what happened to many banks due to so-called subprime loans.

In a bankruptcy situation of any company, a liquidator takes over, sell whatever assets the company owns, give people back their money, creditors first and thereafter whatever is left is distributed to owners/shareholders. Basically the regulators around the world are concerned with making sure there is enough value in the bank to pay its creditors (i.e. Mrs depositor), shareholders losses are their own problem.

Therefore to protect creditors we ask banks to hold a significant amount of what is called core tier one capital. This is an important concept to understand. Core capital can only come in two ways, either by the shareholders putting their money into the business or if the company makes a profit and the company keep this profit in the business. Core tier 1 capital is cash that the company could otherwise have paid out to the shareholders.

There is an international agreement about how much core tier 1 capital banks should hold, and that is called Basel III. It determines that banks depending on their risk should hold capital in the region of 10.5 to 13 % of their assets. If you want to read more about it have a look at

So, Conrad, let’s say that you and I want to start this new £10 billion bank, that means that we need to inject £1.3 billion (if we assume 13% capital requirement) of our money as collateral. If the regulator decides to increase the capital requirements later we will have to either inject more capital (if we have any) or retain profits (if we have any) or reduce our lending.

Let’s imagine that the regulator suddenly decide to increase the capital requirements to 20%, we need to find an additional £700 million and since our bank only makes a £50m annual profit, it will take us 14 years, which will be unacceptable for the regulator. Then we can try to find investors, but because the return on equity in our bank is so low (£50M on £2B capital = 2.5%) relative to other industries it is unlikely we can find an investor, so short term we can basically only reduce our lending to solve the problem.


As you can see in the examples above increasing the liquidity and capital requirements have a fairly direct impact on our banks ability to make money. In general we are left with relatively few choices. Short term we will reduce our lending to fit the new capital requirements (basically by not lending to any new customers which is what you see happening at the moment), but then we have to deal with the really serious issues of not making a return on equity. If we want to make more money for our shareholders we can either pay less interest to depositors (very difficult because we certainly can’t risk that they leave us), reduce costs (but it actually have a relatively minimal impact on the bottom line) or charge higher interest on loans (and since the other two options dont work this is what we will do). Generally in banking the only way we can earn a higher interest is to get involved in riskier lending so that’s invariably going to be our plan. Hmm but that wasn’t exactly what the regulators, governments and consumers were hoping for.

So Conrad would say to the regulators, precisely because we are trying to create a quality and responsible bank, please please introduce new requirements at a pace we can deal with without destroying our business, and we would of course say that the less risky lending should drive a much lower capital requirement, otherwise we are forced to get into all sorts of shady things to be able to create a return. It would be bizarre that we would be forced to set up credit card and payday loans business simply to fill our capital buffers. We would also say to the politicians, if you want us to act responsibly, don’t complain when we are lending less to risky customers, and if you want to drive unsustainable growth through consumer spending, you have to do the dirty work yourself, and so don’t expect us to be an active participant in underwriting low quality loans.

We would also ask for legislation on lending policy. We would for example be happy to see a maximum loan to value of say 80% (i.e. it would be illegal to lend to anybody who has not first saved up 20% for a deposit). What would happen generally is that house prices would fall initially, but after the initial pain (which the government would have to introduce schemes to help alleviate) very few people would end up in negative equity. Conrad and I would also say that a house is a home first and foremost and we would be in favour of capping the number of investment properties one can own. This will do two things. Again it will make houses more affordable for consumers, and it will also reduce the number of high-risk loans on the bank’s books.

Finally we would be completely against unilateral regulation. As you can see above, these requirements does impact the competitiveness of the banks because they have to hold greater amounts of “unproductive cash”. Foreign banks with branch status could therefore gain an unfair advantage. It has to be a multilateral agreement.

Conrad and I are proud to be bankers, we are proud to be able to help our customers buy their first home, a home they can afford (don’t be upset when we say no), plan their finances so they can put their children in a good school, and make suitable provisions for their own retirement. All we ask is that regulations support our pursuit of proper quality and service. We ask that there is a significant correlation (much more than currently) between risk and capital requirements and we ask the government to not create all sorts of schemes and subsidies to inflate property prices.


  1. Ok, B.N. -- This kind of thing is not my strong point, but I think I got it as much as I will at this time.

    You haven't really addressed the central problems, regarding the financial crisis as it has caused the Occupy protests. That might be because in the U.K. they're not well covered.

    So I'll go over them, as well as I understand them. Again, the finances are not my thing. But this is what happened:

    For years, banks have been giving American homeowners mortgages. Based on their own calculations, they knew these mortgages would fail. (Owners couldn't afford them.) Then they took out financial instruments basically betting that those bad mortgages would fail.

    These bad mortgages were then bundled together, misrepresented as being profitable, and sold around the world. Delicious chocolate treats dipped in gold! -- Well, at some point someone bit into one and discovered that it was not actually chocolate, but another substance entirely.

    So the whole sham came tumbling down. Now the banks went crying to Uncle Sam, explaining what bad shape they were in financially. Because the assets people had been using as a basis to investment in them didn't exist.

    Uncle Sam allowed the first one to fail, and that caused such economic trouble that when numbers two and three came to them, he said, "Ok, ok, we'll cut you a deal." That deal was a multi-trillion dollar bailout -- crazy money; the kind of money we spend on the wars.

    As I understand it, this bailout was for the express purpose of ensuring liquidity, so that banks could continue to lend money to the man on the street, the economy could function smoothly, and we would avoid what is technically termed an economic death spiral.

    Not sure of the spelling of that one.

    Now the CEOs that run those companies took that bailout money and shunted it direct into the pockets of the ultra-wealthy. This was a bad business decision that hurt their own companies. It also hurt the economy, and the man on the street lost jobs and lost housing.

    Despite the fact that it was a bad business decision, the CEOs who did that were paid million dollar bonuses. That's on top of their million dollar salaries.

    And this was really illegal. Or so I'm told. There is a half-hearted effort to press charges, but apparently the lawyers nominated to pursue that are fiddling about with half-measures.

    I mean, this is the way Communist Russia did business.

    Now I don't know anything about how it works in the U.K. -- if you're worse off than we are, then God bless -- ah, but I'll note that one major difference between the U.K. and the U.S. as I understand it is that "welfare" is not a dirty word to you guys.

    It is here. Very difficult to see a doctor. Any measure that would enable low-income workers to see a doctor is quickly denounced as socialism. Reagan's 1980s "trickle-down" tax break on the ultra-wealthy, reducing their taxes from 70% to 35% on the theory they'd blow the savings on making the economy better for the rest of us has been perpetually renewed until this very day, and the argument persists that we have economic problems because we tax the rich too highly.

    That's all by way of background. In terms of bank regulations, now that we have a clearer picture of how it *should* work -- why *hasn't* it been working that way?

    Many thanks for your explanations,


  2. @ Conrad: Don’t worry if you thought the post was a bit difficult to get through. I asked my wife to read it and she said it gave her a headache. I do however think it is important to understand the thing you are trying to change and that is the reason for my longish post.

    You are very right about banks lending to people knowing some of them would default on their loans. That would always be the case but there was a certainly practice, where the IT systems did most of the decisions and the numbers became more important than the person. If you read my post "Return of the Cash Cow" you will see that I have been quite deeply involved in designing and developing the IT systems for subprime lending. Many things were wrong with that, and you can read what I feel about it in my post, but I hope we can also assign some responsibility to the people who borrowed more money than they could afford to pay back.

    I have also worked with securitisation of mortgages (what you call bundling and chocolate treats). It was not the securitisation itself (that’s basically just a statistical model) that was the problem, it was the valuation of the underlying asset (the houses) that was completely wrong and often a lot of fraud was committed regarding the borrower’s ability to pay back (i.e. the loan application would state a lower age, a higher income, lower existing loan obligations, a different occupation than the truth etc.). This fraud could have been committed by the mortgage seller or in some case by the borrower. When you feed a model with fraudulent date, the results will of course also be fraudulent.

    I’m now working on a project to look at some of these mortgages that was bailed out, and what we are seeing in the samples is that 3 out of 10 mortgage applications contain some level of fraud, those people who are committing these offences should be pursued legally, no matter if they are mortgage sellers or consumers.

    The salary question I can’t answer easily because it depends on the contract the CEO has with her company. There have been examples here where the regulator, government, bank board’s etc have tried to claim back some bonuses from the CEO’s that presided over these spectacular failures, but often it can only happen voluntarily because they have bullet proof employment contracts. In a private company, the owners (shareholders represented by the board) are free to pay their employees, including the CEO, whatever they deem appropriate. The failure to align salary with performance would be a failure of the board and the remuneration committee. One thing to add though is that in the current situation some of the failing banks now require the best management and they would invariably like to be paid.

    I can't give you conclusive reasons for everything that went wrong, but I think the suggestions that I outlined in my post would address most of the issues you also mention and make banking far better. I really tried my best to give you a proper answer to your question but it is, of course, a complex issue. I don’t think we disagree much, Conrad, except perhaps on the importance of banks and the way forward. I therefore wonder if you would in return be able to shed some light on what the Occupy movement want. I know (sort of) what you are against, but it is hard for me to figure out what you are for.

  3. "The failure to align salary with performance would be a failure of the board and the remuneration committee."

    You don't seem to be hearing what happened. The CEOs were awarded for their performance. They performed. They shunted the bailout money illegally into the pockets of the ultra-wealthy, who owned the banks, and the banks, as institutions, rewarded them: even though this hurt the bank as a business, it benefitted the decision-makers.

    Someone-or-other famous recently commented, "The best way to rob a bank is to own it."

    I think banks are of the utmost importance. The question I think we need to ask in the face of this nightmare is whether they're not too important to allow in the hands of private interests. I mean, this is getting really old. Socialism for the rich and capitalism for everyone else.

    To answer your question, Occupy is a protest movement. We protest. Specifically, we protest the Wall St. theft.

    We need to fix the system so this doesn't keep happening. (It turns out that banks had gotten under-the-table bailouts numerous times from the U.S. government, I believe from the SEC, leading up to the Congressional bailouts. Congress wasn't informed of the previous ones.)

    In my opinion, the basic goal of Occupy is that a man making minimum wage should be able to support a wife and three kids without a dime from Uncle Sam. Once we had that in this country. Doctors were paid for out of pocket.

    The economic and legal structure in this country pries families apart like a big crowbar. A man can't raise a family. If you want to make good economic decisions, you wouldn't start having kids until you were forty. That's *insane*.

    Then to try to offset that we pay people for being poor and having kids. So we get poor single mothers pounding out a baby a year, no father named, for the income. Hey kid, who's your daddy? Uncle Sam.

    Then Newt Gingritch, who you might have heard of, stands up on national TV and says American workers have nothing to complain about because anybody can afford a DVD player.

    The economy is the way it is because it's designed that way. We *built* it to pry families apart, to destroy the family as the fundamental economic unit. We *built* it to insulate the ultra-wealthy from economic risk and self-destructive business choices. We've got to rebuild it.

    Now about banks -- is there any particular reason they couldn't be owned and operated by the government? The CEOs rewarded for success, for proper success, just as if they worked for honest investors? Any profits rolled into the tax base?

  4. @Conrad: Thank's a lot. Very interesting debate.

    "Shunting the money into the pockets of the ultra wealthy" I can't comment on with any conviction because it its not anything I have evidence of personally. If you are saying that there is theft, then of course perpetrators should be in jail next to Madoff and whomever else engage in these things. 

    There is absolutely no reason why some banks couldn't be owned by the government and there are indeed many examples of that currently. I don't think it is the best solution though, I think we are trying very hard to make sure that if banks fail, they don't pose a systemic risk, and therefore they can fail.  We don't want the tax-payer to take that risk because we don't want a repeat of the last few years.

    And I think you need to dig a little deeper before deciding nationalisation is the best option. The Clinton and the Bush administrations both pushed an unsustainable growth model fuelled by a massive rise in consumer credit and property price inflation. Spending and employment gets you votes, austerity and cuts do not. Reading the above I also think you are not sure if you want more or less of Uncle Sam's involvement.

    What I am seeing at the moment is an increased interested in mutualities and cooperatives, essentially banks owned by their staff or their customers. If done right, I believe they could be attractive for people with your views. You will see a lot more of this happening.

  5. @Conrad: Sorry forgot to say, profits are rolled into the tax base. It's called corporation tax. This year Financial Services in the UK contributed more to the tax bill than any other industry, so it's not all bad news.

  6. "If you are saying that there is theft, then of course perpetrators should be in jail next to Madoff and whomever else engage in these things."

    Rich people in jail would be a start. But I doubt it will happen. The only reason Madoff's in jail is that he victimized other rich people.

    To some extent, even if the Wall St. theft weren't illegal, it still demonstrates the antisocial decision-making process which guide for-profit corporations.

    Good points about nationalization. I hadn't thought of co-operatives and such.

    "The Clinton and the Bush administrations both pushed an unsustainable growth model fuelled by a massive rise in consumer credit and property price inflation. Spending and employment gets you votes, austerity and cuts do not. Reading the above I also think you are not sure if you want more or less of Uncle Sam's involvement."

    I don't care whether it's more or less involvement from Uncle Sam, as long as it works. I'm not ideological in these matters. I want the right outcome.

    I don't know whether more or less involvement is correct. I imagine that we need a different *type* of involvement, which is perhaps the real issue.

    Based on what I know of economics, which is not a lot, I doubt we can lay at any one man's feet the focus on growth. Capitalism demands growth. And therefore people seeking to get money from investors will seek to show growth on paper, whether it's real or not.

    We've seen this larger pattern before. In the 1880s, American industry had produced enough to meet the needs of American citizens. Largely. Production of farm combines and so on exceeded demand.

    That's when advertising took off. The reason is that now you needed to stimulate artificial demands, which were not linked to consumers' rational needs. But that's not sustainable, and lead to wild tulip-style speculation and eventually the big crash and the depression.

    In America, we got out of the depression because in the war effort we switched the economy into a fascistic one. Government took control of industry. With the war won and the economy straightened out, U.S. sold industry out to private investors, and we got the 50s. An age of prosperity.

    Economic analysts at that time were looking at projections and saying the future of a democratic, industrialized society is abundance. Because production would outstrip need, by 2000 we'd need to work only 2 day work weeks to maintain a very high standard of living.

    Now those predictions came true if you look at the U.S. GDP per capita. But the rich got it all. They saw it coming and made legal changes to the distribution of wealth.

    But also those analysts did not take into account the need that the power elite has to drive *growth*. Thus the system is not designed to distribute scarce goods to the population. It's not even designed to ensure people can meet their basic animal needs.

    It's designed to drive growth, because this is what the CEOs who run industry are rewarded for doing. This is the behavior shaped by their pattern of incentives.

    For these reasons it seems to me that the problem goes deeper than we have yet addressed. I'm not saying I see a solution -- I do not at this time -- but that we need to identify and address the root cause.


  7. @Conrad: “one shall only steal from the poor”. I’ll make sure to credit you in my management encyclopaedia :)

    Growth is good, sustainable long term productivity growth that is; to boost spending by increasing the consumer debt level isn’t real growth. You will find many economists to tell you that currently (with the benefit of hindsight). Paradoxically though, we are now in a position where businesses are not borrowing enough, therefore not investing enough, and instead paying down debt which inhibits growth. I have been following some very interesting Japanese economists who highlight this new counterintuitive problem, and after two decades of zero growth, they of course have some experience to draw on.

    You do make a good point about wealth creation, and more importantly the (re)distribution of that wealth. I passionately believe the capitalist system is the most effective for creating wealth but obviously not always for sharing it. But I have found many Americans, rich and poor, quite sceptical of a progressive tax system to finance a bigger welfare state.

  8. “one shall only steal from the poor”. I’ll make sure to credit you in my management encyclopaedia :)

    To the objection that the poor have nothing to steal, your encyclopedia can reply with the strategy of leveraging the poor into long-term debt bondage, enforced with governmental authority. --But please don't credit me. It's common practice. Wouldn't feel right.

    Many thanks, B.N., for all the good info. If you can direct me to good books or references, that strike a balance between being not-too-technical and not-too-watered-down, I'll pursue them and see if I can't come back with further intelligent questions.