[PASSED] Deposit Insurance Fund

[Araraukar]

So how would you solve the problem of banks which operate across borders?

OOC: As I said in IC:

"they should perhaps ensure that the member nation - or nations, in the case of multinational banks - in which the bank operates, would be the first and foremost payer if the insurance fund didn't have sufficient funding."

Basically, if a nation allows a bank to be a bank in it, they should take part of the responsibility - and possibly pass additional national laws to regulate banks within their jurisdiction to ensure they don't end up as payers (or not allow irresponsible banks to operate, period) - for it working out as it should. I'm sure you can put that into financial fancy-talk for the proposal.

How would you reconcile differences in regulatory criteria between those nations?

They seem to be manageable in RL, so it's clearly not impossible. If you think of the bank as any business; if they want to partake the opportunities in any one nation, they play by that nation's laws and any international laws that nation might under obligation to apply, as well. So if a bank can't handle the regulations in a nation, they obviously can't partake the business opportunities in that nation.

[Kelssek]

So you think nations ought to have Deposit insurance. So how would you solve the problem of banks which operate across borders? Banks in the modern era are highly interconnected. How would you reconcile differences in regulatory criteria between those nations?

Your proposal "encourages" nations to have deposit insurance, so I don't think we disagree about this. Our delegation's preference is that each state would insure the accounts residing in its jurisdiction, and this would be backed up by the WA's deposit insurance if necessary. Bank accounts must still be "resident" somewhere under some state's authority, and that state's deposit insurance would cover that first, with the WA then called in to deal with transnational spillovers. Such as when a lot of foreigners have deposits in a bank that fails, and the national deposit insurance is unable to handle those claims. Presumably the WA DIF has been charging that bank a premium based on its assessed risk according to the information about those foreign accounts that it's been required to produce, and presumably has considered issues like the riskiness of banks given domestic regulations, exchange rate risk, etc.

What I and other ambassadors want to avoid, I think, is the reach into the WA General Fund, and therefore into everyone's assessed donations. If a crisis is so bad that the WA DIF itself might become insolvent, we want the states most affected and most responsible to bear the burden first and to believe that they have to do so. Of course interconnectedness exists, but the extent of interconnectedness is not a uniform phenomenon, and it is not a given that Kelssek or any other country is equally affected by a bank failure in a country or region with which we have few commercial ties.

Our suggested wording still allows the WA DIF regulatory authority over directly relevant banking issues. We just don't want to see mission creep where it starts deciding it needs to interfere in fiscal policy to ensure the stability of the banks.

One real issue I can see here is if residents of WA members were for some reason putting all their savings in bank accounts held in non-member states, but this is not a solvable problem because nothing we pass here could impose on non-members anyway.

[Imperium Anglorum]

Still in the context of the European report, I'm unsure what exactly Kelssek is arguing for. It seems a blend between options (b) and (c). Both options are pretty clearly sub-optimal, but it also is clear that national insurance schemes will still exist. My thoughts then are on whether Kelssek would support are more clear statement of option (b), where members must provide such services and the Fund serves as secondary insurance.

That said, total abolition of member nation insurance schemes is still more efficient. https://op.europa.eu/s/oaeS.

Ara's remarks ignore sections of the already quoted (multiple times not just here but also in the FAQ) EU Commission report as to state capture:

while the existence of the Single Supervisory Mechanism and the Single Resolution Fund already act as partial deterrents against ‘free riding’ behaviour, the use of risk-based variable fees (therefore higher for riskier banks) set and collected by a central euro area institution (therefore avoiding the ‘institutional capture’ that arguably affected some bank systems in the run-up to the sovereign debt crisis) would likely be the best way to avoid moral hazard. (emphasis in original)

The arguments cross-apply directly at every level to the state capture arguments which Ara made. A supervisory mechanism? Fund has it. A resolution mechanism? Fund has it. Risk-based variable fees (specifically noted by the report)? Fund has it.

As to the banks are clever argument, I agree. That they are clever is exactly why this stuff I described in my FAQ happens:

Fourth, differing regulations between different jurisdictions permit banks to move risky business practices to areas with lax regulations where nobody will say anything. This also makes it unclear which regulators are responsible – especially with strong domestic pressure to ring-fence assets or make whole domestic depositors only – which leads to buckpassing.

---

Yes, this is back on the table. EDIT: Formatting ugh.

[Honeydewistania]

I support this.

[Imperium Anglorum]

CYRIL PARSONS (dipping into the chamber for a moment to congratulate Elsie): I would also like to invite Ambassador Bell to give any remarks he might have on how this proposal and Int'l Bankruptcy Comity mesh.

[Graintfjall]

OOC: As you don’t seem capable of staying in-character I won’t be debating this as I don’t want to my characters godmoded, nor have any interest in a General forum-esque discussion of deposit insurance. That said this looks like a really strong proposal in substance, and I love the informal tone of the preamble. Would be awesome to see this pass.

[Imperium Anglorum]

Bump.

[Boston Castle]

Looks fine content-wise. One small nitpick is that enroll is misspelled “enrol” in clause 1.

[Imperium Anglorum]

Looks fine content-wise. One small nitpick is that enroll is misspelled “enrol” in clause 1.

No, it isn't. English is English.

[Honeydewistania]

Looks fine content-wise. One small nitpick is that enroll is misspelled “enrol” in clause 1.

This argument again? Enrol, not 'enroll', artefacts not 'artifacts'. There, done.

[Boston Castle]

Looks fine content-wise. One small nitpick is that enroll is misspelled “enrol” in clause 1.

This argument again? Enrol, not 'enroll', artefacts not 'artifacts'. There, done.

Really not argument against or anything. My apologies for having been socialized to spell things a certain way and believing, however wrongly, that he’d misspelled them.

[Honeydewistania]

This argument again? Enrol, not 'enroll', artefacts not 'artifacts'. There, done.

Really not argument against or anything. My apologies for having been socialized to spell things a certain way and believing, however wrongly, that he’d misspelled them.

Sorry, just that just a few months ago when voting on 'Pedagogical Freedom' there was the exact same argument about the exact same word. Carry on!

[Tinhampton]

Delegate-Ambassador Alexander Smith: As a general rule, anything I can't understand automatically receives my support. I believe that the colon after "mania" should be a semi-colon myself, but whatever...

[Imperium Anglorum]

I believe that the colon after "mania" should be a semi-colon myself, but whatever...

Nope. viewtopic.php?p=37546023#p37546023

[Bananaistan]

"We note many amendments since the proposal was first presented. However, we must remain opposed.

"The continued role of the General Fund as the ultimate guarantor is a concern.

"Per section 3(b), if a nation's domestic deposit guarantee scheme has already reimbursed scalded depositors, no cost falls back on this scheme. This would appear to be in indirect encouragement to member nations to abolish their own domestic deposit guarantee scheme in order to see costs spread across the whole WA rather than just locally."

[Imperium Anglorum]

"Per section 3(b), if a nation's domestic deposit guarantee scheme has already reimbursed scalded depositors, no cost falls back on this scheme. This would appear to be in indirect encouragement to member nations to abolish their own domestic deposit guarantee scheme in order to see costs spread across the whole WA rather than just locally."

There would substantial sandboxing of costs because

Depository institutions enrolled in Fund insurance pay premiums in proportion to the amount and risk of Fund-insured deposits.

If a nation with risky banks attempts to buck pass to the scheme to avoid paying for risk, the scheme says 'okay' and then assesses based on risk against those risky banks anyway. The ability to buck pass risk is minimal because of the risk-adjusted premium structure. I already said as much in point 4 of the FAQ, viewtopic.php?p=37410597#p37410597, viewtopic.php?p=36395468#p36395468, viewtopic.php?p=36396652#p36396652, viewtopic.php?p=36396962#p36396962, and viewtopic.php?p=36397147#p36397147.

If your objection, rather, is to banks not being regulated as harshly by nations; see the top of this page where I explained why that doesn't matter also, because the DIF has authority to regulate the banks for itself. Why is that there? Well viewtopic.php?p=37410597#p37410597, viewtopic.php?p=34115835#p34115835 (Moral hazard heading, point 3), viewtopic.php?p=36397219#p36397219, etc.

[Refuge Isle]

Delegate-Ambassador Alexander Smith: As a general rule, anything I can't understand automatically receives my support.

"The Administration would note that this explains a great deal."

[Imperium Anglorum]

Bump.

[Boston Castle]

“One very quick question. Do the provisions in 2(b) and 2(e) essentially create a stress test for Fund-insured institutions? If so, are there any provisions/could you include any regulations in regards to regularity?”

[Imperium Anglorum]

“One very quick question. Do the provisions in 2(b) and 2(e) essentially create a stress test for Fund-insured institutions? If so, are there any provisions/could you include any regulations in regards to regularity?”

If by stress test, you mean 'an analysis conducted under hypothetical scenarios designed to determine whether a bank has enough capital to withstand a negative economic shock', no. https://www.investopedia.com/terms/b/ba ... s-test.asp.

[Imperium Anglorum]

Bumpy.

[Imperium Anglorum]

Bump.

[Kelssek]

Still in the context of the European report, I'm unsure what exactly Kelssek is arguing for. It seems a blend between options (b) and (c). Both options are pretty clearly sub-optimal, but it also is clear that national insurance schemes will still exist. My thoughts then are on whether Kelssek would support are more clear statement of option (b), where members must provide such services and the Fund serves as secondary insurance.

That said, total abolition of member nation insurance schemes is still more efficient. https://op.europa.eu/s/oaeS.

For us, efficient is not the priority here. Political acceptability and removing the possibility of unlimited claims on the WA General Fund is. Notwithstanding the turnover in our diplomatic staff since the last time Kelssek addressed this issue, I think our nation's stance and what we want to see for support is clear.

[Bananaistan]

Still in the context of the European report, I'm unsure what exactly Kelssek is arguing for. It seems a blend between options (b) and (c). Both options are pretty clearly sub-optimal, but it also is clear that national insurance schemes will still exist. My thoughts then are on whether Kelssek would support are more clear statement of option (b), where members must provide such services and the Fund serves as secondary insurance.

That said, total abolition of member nation insurance schemes is still more efficient. https://op.europa.eu/s/oaeS.

For us, efficient is not the priority here. Political acceptability and removing the possibility of unlimited claims on the WA General Fund is. Notwithstanding the turnover in our diplomatic staff since the last time Kelssek addressed this issue, I think our nation's stance and what we want to see for support is clear.

"We agree with the comrade from Kelssek. The role of the General Fund as the ultimate guarantor of bad banks is an issue and it still looks to me like an exercise in taking money from responsible socialists and communists and handing it over to reckless capitalists when their gambles fail.

"If this chose a horse and rode it all the way to the finish line we could at least abstain but unfortunately we're still straddling two stools. On the one hand, member states are encouraged to institute appropriate domestic schemes, OTOH nobody is obliged to take out this WA guaranteed insurance. Ofc if the General Fund was removed altogether, we would definitely move to tentative support."

[Imperium Anglorum]

Bump. I've read the above posts and I'm largely unconvinced. The risk-adjusted premiums along with regulatory controls largely mitigate firm-level risk, as explained previously. There also isn't any level of moral hazard from a risk reallocation: payouts are not made to firm, management, or shareholders which would be required to justify a claim of moral hazard; payouts are made instead cover demand liabilities that otherwise would go uncovered when a bank fails.