Submitted the Shadow Banking Inclusion Act

[Banking Empire of Firenze]

Good day!

I am a very new nation however, I wanted to try my hand at drafting a proposal for the General Assembly. I noticed that I needed people to approve my proposals before it can get voted.

Here is the link to my proposal :
https://www.nationstates.net/page=UN_vi ... 1630554077


In hindsight, I probably should have drafted it here in the forums first before suddenly just submitting a proposal. If you have any comments or corrections or whatever, please feel free to message.

Thanks

[Outer Sparta]

Obviously you should have drafted before to check for mistakes, errors, possible legality issues, and to let others help you build your draft. I recommend you withdraw it and make a draft here.

At first glance, looks quite poor and the formatting is all over the place.

[Imperium Anglorum]

The General Assembly,

Noting that the Banking System is fundamental to the growth and welfare of our nations through the creation of credit to fuel consumption and entrepreneurial growth.

Comparing the industry standards and heavy regulation of standard banks (commercial, retail, rural banks & etc.) and quasi-banks (insurance companies, credit unions, pawnshops, & etc.) while there is an absence of regulation in the shadow banking system.

Deeply concerned with the rapid growth of the shadow banking industry, thereby increasing the risk to investors and the economic stability of the nation.

Reasons why shadow banking must be regulated :

1) The possibility that the shadow banking system is used as a way to escape regulation and is used to do things that could be done under the traditional regulated system, increasing the probability of systemic events i.e. Financial Crash

2) The activities involve high leverage and maturity, liquidity and credit transformation, and therefore make the shadow banking system, just like the traditional banking system -- vulnerable to panics and systemic events.

Hereby :

I) Defines Shadow Banks as a group of financial intermediaries facilitating the creation of credit across the global financial system but whose members are not subject to regulatory oversight; Also refers to unregulated activities by regulated institutions.

II) Identifies & Classifies Shadow Banks based on activity such as:

1) Investment Banking
2) Money Market Funds
3) Hedge Funds
4) Private Equity Funds
5) Mortgage Lenders
6) Payday Loans
7) Peer to Peer Lending
Structured Investment Vehicles
9) Special Purpose Entity Conduits
10) Repurchase Agreements
11) Brokerage Firms
12) Loan Sharks

Mandates that Member States :

I) Create a Shadow Banking Regulatory Board with the following purpose

1) To created a system-wide monitoring framework to track developments in the shadow banking system with a view to identifying the build-up of systemic risks and enabling corrective actions where necessary

2) To mitigate the potential systemic risks associated with shadow banking

II) Develop Policies to Cater to the following:

1) Mitigating the spill-over effect between the regular banking system and the shadow banking system

2) Reducing the susceptibility of money market funds to runs

3) Improving transparency and aligning incentives associated with securitization

4) Dampening pro-cyclicality and other financial stability risks associated with securities financing transactions

5) Assessing and mitigating systemic risks posed by other shadow entities and activities

This integrated set of policies should mitigate financial stability risks emanating from shadow banking and help to transform it into resilient market-based financing that will support sustainable economic growth.

And Lastly, Urges Member States to not fall into lobbying by Shadow Banking Firms.

It's like someone saw the "shadow" part and thought that it had to be literally cloak and dagger stuff:

The activities [of shadow banks] involve high leverage and maturity, liquidity and credit transformation, and therefore make the shadow banking system, just like the traditional banking system -- vulnerable to panics and systemic events.

They don't. In fact, with stuff like money market funds, which are included in the shadow banks list, they deal with probably safer securities than lending to consumers directly. Moreover, while certain mortgage lenders are shadow banks – Quicken comes to mind – most mortgages are still made by... normal banks... which somewhat detracts from the credibility of this definition (if it isn't altogether stolen). Similarly, repurchase agreements are an instrument, not a shadow bank. The institutions which make repos may or may not be shadow banks, but the contracts themselves are not.

While it's definitely an interesting idea to "reduc[e] the susceptibility of money market funds to runs", the way one does that, as money market funds track capital 1:1, is to insure them. Or give them implicit guarantees that they would be de facto insured, which is what ended up turning out to be the case during the last financial crisis. The other points under "II" require far more elaboration: it is broadly insufficient, at least before the voters, to lay out a number of goals with no mechanism to effecting them or guidance as to what policies are to be implemented.