Whereas bank runs can bankrupt a bank, leading to all the depositors' savings disappearing in a flash of mania:
And whereas everyone suddenly no longer having any savings to buy things with sharply reduces economic activity, making everyone poorer and harming all workers and consumers:
And whereas the Assembly has acted in the past to insure financial assets and liabilities, such as in the case of GA 226 "WA Development Foundation":
And whereas that is not enough, as (1) banks are central to modern payments systems and (2) protections for firms or certain asset classes in specific circumstances do not necessarily protect savers from having their life's work wiped out in an instant:
Be it therefore enacted by this most excellent World Assembly, as follows:
- All member nations are encouraged to establish a deposit insurance scheme that meets or exceeds the protective standards given by the Deposit Insurance Fund. But when a member nation lacks the institutional regulatory capacity to credibly insure deposits, they may not establish such a scheme. All depository institutions are encouraged to enrol, and all such institutions with demand accounts are required to enrol, in the Deposit Insurance Fund.
- There shall be established a Deposit Insurance Fund, hereinafter referred to as the Fund, with the following mandates. The words insured depository institutions (or IDI) refer to those institutions the Fund insures.
- Depository institutions enrolled in Fund insurance pay premiums in proportion to the amount and risk of Fund-insured deposits. Extra premiums may be levied against what the Fund believes are systemically important institutions. IDIs receive a certificate and the ability to advertise that their deposits are insured by the Fund. Member nation institutions not insured by the Fund may not make fraudulent claims that they are so insured.
- If an IDI declares bankruptcy or is judged by the Fund to be critically undercapitalised, the Fund shall resolve it. The amount of deposits insured by the Fund shall be determined by an insurance limit for that jurisdiction as a whole, set by the Fund after taking advice from the government of that jurisdiction.
- The Fund may resolve an IDI in one of the following manners with the least cost to the Fund: (i) It may pay out to the depositors of such an institution their insured deposits. (ii) It may sell such an institution, or parts thereof, to another IDI, with some proportion of expected losses shared by the Fund, set at the Fund's discretion. (iii) It may advance liquidity support to such an institution if the Fund believes that the institution is a systemically important. (iv) It may administer the IDI until such time that it is able to take other action.
- In all cases where the Fund closes an insolvent IDI, it must (i) make reimbursements to depositors forthwith and (ii) liquidate the assets under receivership, distributing the proceeds to stakeholders under section 3 infra.
- The Fund shall collect and supervise the collection of financial and legal information to determine the risk of failure and therefore, appropriate premiums to be levied on IDIs. The Fund is empowered to release such non-sensitive information to the public that it believes useful in furthering depositor discipline or improving transparency of the banking sector.
- The Fund may require IDIs to pre-pay premiums, in exchange for credit against future premiums, within a reasonable time window. Where the Fund is unable to adequately insure depositors, it may borrow from the World Assembly General Fund the necessary money to achieve its mandate.
- The Fund shall distribute remaining monies raised at the liquidation of an IDI to the following classes in the following order: (a) the Fund itself, solely in remuneration for expenses incurred in that liquidation, (b) insured depositors if they have not yet been fully reimbursed, (c) uninsured depositors, and (d) all other stakeholders according to the bankruptcy procedures of the relevant jurisdiction. It may also issue an advance dividend against a conservatively estimated value the receivership if doing so would avert substantial illiquidity concerns in local economies.
- The Fund shall have the power to create and enforce regulations needed to ensure that it can in fact credibly and efficiently carry out its mandate. Member nations and IDIs shall comply with and enforce those regulations, and shall further provide whatever information is required by such regulation. The Fund may further create regulations on minimum reserve requirements, capital adequacy requirements, and corporate governance in IDIs.
- The Fund shall liaise with deposit insurance programmes within member nations, to provide guidance and assistance in fulfilling mandates concurrent with those of the Fund.
