Bank Run Prevention Act, 1719

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Bill as amended by the Federal Assembly, 1719


A

BILL

TO

Prevent Bank Runs and Protect the Stability of Financial Institutions in Nouvelle Alexandrie; Among Other Purposes.

BANK RUN PREVENTION ACT, 1718

Ordered, by the Federal Assembly of Nouvelle Alexandrie,
to be Printed, 1718 AN.

_______________________________

BE IT ENACTED by the King’s Most Excellent Majesty, by and with the advice and consent of the Federal Assembly, in this present session assembled, and by the authority of the same, as follows:-

PART I
GENERAL PROVISIONS.

Article 1: Short Title.

  1. This act shall be known as the Bank Run Prevention Act, 1718.

Article 2: Definitions.

  1. "Bank" means any financial institution, including banks, credit unions, savings and loan associations, and any other institution that accepts deposits from the public.
  2. "Bank Run" means a situation where a large number of depositors withdraw their funds from a bank in a short period of time, usually due to fears of the bank's insolvency or other financial troubles.
  3. "Depositor" means any person or entity that has deposited funds in a bank.

PART II
BANK RUN PREVENTION.

Article 3: Restrictions on Withdrawals.

  1. In the event of a bank run, banks are authorized to limit the number of withdrawals that depositors may make during a given period of time. Banks shall notify depositors of the withdrawal restrictions immediately.
  2. Banks must provide a clear explanation of the reason for the withdrawal restrictions to the depositors.
  3. The amount of withdrawal restrictions shall be based on the bank's available liquidity and the severity of the bank run.
  4. The restrictions on withdrawals shall not exceed the minimum amount necessary to address the liquidity needs of the bank.
  5. Banks must notify depositors of any restrictions on withdrawals as soon as practicable. The notification must be provided in writing and by electronic means, such as email or text message, if available.
    1. The notification must include the reasons for the restriction, the amount of the restriction, and the expected duration of the restriction.
    2. The notification must also inform depositors of their rights to request additional information from the bank and to appeal the restriction if they believe it is unreasonable or disproportionate.
  6. For depositors without access to electronic means of communication, banks must:
    1. Establish a dedicated hotline that depositors can call to obtain information on withdrawal restrictions and related updates.
    2. Post clear and visible notices in all bank branches detailing the withdrawal restrictions, including the reasons for the restrictions, the amount, and the expected duration.
  7. Proactively reach out to depositors via alternative means of communication, such as postal mail or through bank representatives, to ensure they are informed of any restrictions on withdrawals.
  8. Banks shall be required to report their efforts to notify depositors of withdrawal restrictions to the appropriate regulatory authority, including the steps taken to reach depositors without access to electronic means of communication.

Article 4: Insurance for Deposits.

  1. All banks operating in Nouvelle Alexandrie shall be required to obtain deposit insurance from the Nouvelle Alexandrie Deposit Insurance Corporation (NADIC), a government-sponsored corporation to protect depositors in the event of a bank failure.
  2. The Nouvelle Alexandrie Deposit Insurance Corporation shall be funded by fees charged to banks, which shall be assessed based on the number of insured deposits held by each bank. The fees charged shall be sufficient to cover the projected losses from bank failures and the operating expenses of the corporation.
  3. The deposit insurance shall cover deposits up to a certain amount, which shall be set by the Department of the Treasury in consultation with the banking industry and depositors, taking into consideration factors such as the level of risk associated with the deposit and the overall financial health of the bank.
    1. Department of the Treasury shall conduct periodic reviews of the deposit insurance coverage amount, considering the needs and concerns of both the banking industry and depositors, and make adjustments as necessary.
  4. The Nouvelle Alexandrie Deposit Insurance Corporation shall be a federally chartered corporation, independent of the government, and overseen by a board of directors appointed by the Secretary of the Treasury. The board of directors shall be responsible for establishing the policies and procedures of the Nouvelle Alexandrie Deposit Insurance Corporation, setting the fees charged to banks, and ensuring that the corporation maintains adequate funds to cover insured deposits.
    1. Board members shall be selected based on their expertise, experience, and integrity in the fields of finance, banking, and insurance.
    2. The selection process for board members shall be transparent and free from political influence, with nominations subject to review and confirmation by an independent committee composed of representatives from the banking industry, academia, and civil society.
    3. The term of appointment for board members shall be staggered, with a maximum term limit, to ensure continuity and independence from political pressures.
  5. The Nouvelle Alexandrie Deposit Insurance Corporation shall also have the authority to regulate the activities of banks to ensure their safety and soundness. It shall have the power to conduct examinations of banks, to issue regulations governing their operations, and to take corrective action when necessary to address problems identified during examinations.
  6. The Nouvelle Alexandrie Deposit Insurance Corporation shall have the authority to take over the operations of a failed bank and to arrange for its orderly liquidation or sale to another institution. In such cases, insured depositors shall be protected up to the insured amount, and the assets of the failed bank shall be used to cover any losses that exceed the amount of insurance coverage.
  7. The Nouvelle Alexandrie Deposit Insurance Corporation shall be required to publish regular reports on its operations, including financial statements and information on the health of the banking system. These reports shall be made available to the public and to the government and shall be used to inform policy decisions related to the banking system.
  8. The government shall provide a guarantee of the Nouvelle Alexandrie Deposit Insurance Corporation, ensuring that it has the financial resources necessary to meet its obligations to insured depositors. The guarantee shall be backed by the full faith and credit of the government and shall be used only in the event that the deposit insurance corporation is unable to meet its obligations from its own resources.

Article 5: Reporting Requirements and Compliance Monitoring.

  1. Banks shall be required to regularly report to the government on their financial condition and their compliance with the provisions of this act.
    1. The specific reporting requirements, including the frequency and format of reports, shall be established by the Department of the Treasury in consultation with the Nouvelle Alexandrie Deposit Insurance Corporation.
  2. The federal government, through the Nouvelle Alexandrie Deposit Insurance Corporation or another designated regulatory body, may conduct inspections and audits of banks to ensure compliance with this act and the safety and soundness of the banking system.
    1. Inspections and audits shall be conducted on a risk-based approach, with higher frequency for banks that pose a greater risk to the financial system or have a history of non-compliance.
  3. Banks shall be required to implement internal compliance mechanisms, including the appointment of a compliance officer responsible for ensuring adherence to the provisions of this act and other applicable regulations.

Article 6: Penalties and Enforcement.

  1. Any bank that violates the provisions of this act shall be subject to penalties, including fines, restrictions on operations, and revocation of its banking license.
    1. The specific penalties for each type of violation shall be established by the Department of the Treasury in consultation with the Nouvelle Alexandrie Deposit Insurance Corporation.
  2. Any bank officer or employee who violates the provisions of this act shall be subject to penalties, including fines and imprisonment.
  3. The Nouvelle Alexandrie Deposit Insurance Corporation or another designated regulatory body shall be responsible for enforcing the provisions of this act and imposing penalties on banks that violate the provisions.
    1. The regulatory body shall have the authority to issue enforcement orders, impose fines, and refer cases to the appropriate law enforcement agencies for further investigation and prosecution if warranted.

Article 7: Exceptions for Acute Financial Stress.

  1. In times of acute financial stress, as determined by the Department of the Treasury in close consultation with the Nouvelle Alexandrie Deposit Insurance Corporation, the Department of the Treasury shall have the authority to temporarily lift any ceilings or limits on bank deposit insurance coverage to prevent or mitigate the impact of the financial crisis on depositors and the banking system.
    1. The Department of the Treasury, in coordination with the Nouvelle Alexandrie Deposit Insurance Corporation, shall establish a set of indicators and criteria to identify and monitor conditions of acute financial stress, including significant deterioration in key financial markets, widespread bank failures, or other systemic risks.
    2. Upon the determination that acute financial stress is present or imminent, the Department of the Treasury and the Nouvelle Alexandrie Deposit Insurance Corporation shall jointly assess the potential impact on depositors and the banking system and determine the appropriate level of deposit insurance coverage needed to address the situation.
    3. The Department of the Treasury shall issue a temporary regulation, subject to public notice and comment, outlining the revised ceilings or limits on deposit insurance coverage, as well as the duration of the increased coverage. The temporary regulation shall be tailored to address the specific circumstances of the financial stress and provide adequate protection to depositors while preserving the financial stability of the banking system.
    4. The Department of the Treasury and the Nouvelle Alexandrie Deposit Insurance Corporation shall closely monitor the financial stress situation and the effectiveness of the increased deposit insurance coverage. They shall also provide regular updates to relevant regulatory bodies, financial institutions, and the public.
    5. Once the financial stress situation is resolved, as determined by the Department of the Treasury and the Nouvelle Alexandrie Deposit Insurance Corporation, the deposit insurance coverage shall revert to the pre-crisis levels, unless a new determination is made that maintaining the elevated coverage is necessary for financial stability.
    6. The Department of the Treasury and the Nouvelle Alexandrie Deposit Insurance Corporation shall review and analyze the response to the financial stress situation, including the effectiveness of the increased deposit insurance coverage, and make any necessary adjustments to policies and procedures to enhance future crisis management capabilities.

Article 8: Tools for Financial Crisis Management.

  1. A resolution regime shall be established to complement the Nouvelle Alexandrie Deposit Insurance Corporation existing authority in handling insolvent banks. This regime shall provide a legal framework for the orderly winding down of bankrupt firms, preserving financial stability and minimizing the impact on taxpayers and the economy.
    1. The resolution regime shall be administered by the Department of the Treasury, in coordination with the Nouvelle Alexandrie Deposit Insurance Corporation, and other relevant regulatory authorities.
    2. The Federal Bank of Nouvelle Alexandrie shall be authorized, upon approval from the Department of the Treasury, to extend credit in unusual or exigent circumstances to banks and other financial institutions facing temporary liquidity issues.
  2. The Federal Bank of Nouvelle Alexandrie shall establish guidelines and criteria for extending such credit, including terms, collateral requirements, and interest rates.

Article 9: Ban on Proprietary Trading by Commercial Banks.

  1. For the purposes of this Article, commercial banks shall be defined as financial institutions that accept deposits from the public, provide loans to individuals and businesses, and offer other financial services, such as checking accounts and savings accounts.
  2. Commercial banks in Nouvelle Alexandrie shall be prohibited from engaging in proprietary trading, defined as using customer deposits to trade on the bank's own accounts for the primary purpose of generating profits for the bank.
    1. The Department of the Treasury, in consultation with the Nouvelle Alexandrie Deposit Insurance Corporation and other relevant regulatory bodies, shall establish rules and regulations defining the scope of the ban and the activities that are considered proprietary trading. These rules and regulations shall include specific examples of prohibited activities, as well as exemptions for activities that do not pose a significant risk to customer deposits or the safety and soundness of the banking system.
  3. Commercial banks shall implement necessary measures to segregate customer deposits from the bank's trading activities, ensuring that customer deposits are not used for proprietary trading purposes. This may include establishing separate legal entities or divisions within the bank to handle trading activities and implementing robust internal controls to prevent the commingling of customer deposits with funds used for proprietary trading.
  4. The Nouvelle Alexandrie Deposit Insurance Corporation and other relevant regulatory bodies, such as the Department of the Treasury or the Federal Bank of Nouvelle Alexandrie, shall be responsible for monitoring compliance with the ban on proprietary trading. This may include conducting periodic examinations of banks' trading activities, reviewing banks' internal controls and risk management practices, and requiring banks to submit regular reports on their trading activities and compliance with the ban.
  5. Enforcement actions against banks that violate the ban on proprietary trading may include fines, restrictions on the bank's trading activities, and, in severe cases, revocation of the bank's license to operate.
    1. The Nouvelle Alexandrie Deposit Insurance Corporation and other relevant regulatory bodies shall have the authority to impose these penalties and to take any other appropriate actions to ensure that banks comply with the ban and protect the safety and soundness of the banking system.

PART III.
CLOSING PROVISIONS.

Article 10: Closing Provisions.

  1. This act shall apply to all of the Federation of Nouvelle Alexandrie.
  2. This act shall not become law unless it has been given Royal Assent.
  3. This act shall be published and made publicly available.
  4. If any provision of this act, or the application thereof to any person or circumstance, is held invalid, the remainder of the act, and the application of such provision to other persons or circumstances, shall not be affected thereby.