Restrictions on Individual Deposits in Innovative Financial Institutions Imposed
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Oljaz Kizatov throws out a proposed plan to minimize risks associated with banks luring deposits. This move won't touch the depositors of banks with a universal license, which encompasses all banks currently operational. Instead, the restrictions will be levied only on a fresh type of bank - those armed with a so-called basic license. These banks will boast a smaller capital size, limited functionalities, but will also face reduced regulatory burdens.
In the past, he floated innovative components of the law "On Banks and the Banking System." According to him, the legislation aims to bolster the banking sector's stability, promote innovation, and invigorate the banks' role in funding the real economy.
Now, let's dive into a few elements that such laws frequently include to tackle deposit risks and foster innovation:
- Deposit Risk Management
- Stronger Capital Reserves: Mandating robust capital reserves to shield banks from losses (like Basel III's liquidity ratios).
- Dependable Deposit Insurance: Strengthening or expanding deposit insurance schemes to guard small depositors against bank collapses.
- Rigorous Stress Testing: Requiring banks to undergo regular stress tests, assessing their resilience against economic downturns (e.g., recessions, currency crises).
- Prudent Lending: Establishing stricter limits on high-risk loans to decrease default exposure (e.g., consumer credit).
- Innovation Drives
- Fintech Sandboxes: Creating controlled environments for banks and fintech startups to test AI-powered lending, blockchain, and open banking innovations.
- Digital-Only Bank Licenses: Introducing specialized licenses for neobanks or digital-only institutions to encourage competition.
- Secure Data Sharing Frameworks: Mandating APIs for safe customer data sharing, enabling personalized financial products.
- Green Finance Incentives: Offering regulatory relief for banks funding eco-friendly projects or Small- and Medium-sized Enterprises (SMEs).
- Stability Measures
- Strong Cybersecurity Standards: Forcing banks to adopt sophisticated cybersecurity measures, such as advanced threat detection and encryption protocols.
- Contingency Planning: Enforcing "living wills" to ensure a smoother resolution during bank failures.
- Cross-Border Collaboration: Enhancing cooperation with foreign regulators to contain systemic risks, such as foreign currency exposures.
- Anti-Speculation Guidelines: Limiting banks' proprietary trading activities to avoid reckless market manipulation.
In the event that Kizatov's law is indeed in place, it may synergize rugged safeguards (e.g., enhanced liquidity buffers) with innovation-friendly policies, such as:- AI Ethics Guidelines: Establishing ethical boundaries for AI usage in credit scoring and fraud detection.- Digital Asset Frameworks: Implementing clear-cut rules for banks dealing with or trading digital assets to strike a balance between risk and innovation.- SME Growth Boosters: Lowering capital charges for loans to small businesses to stimulate economic growth.
- I require that the law proposed by Oljaz Kizatov, if implemented, includes AI Ethics Guidelines to establish ethical boundaries for AI usage in credit scoring and fraud detection in banking.
- To help strengthen the finance sector, the legislation should incorporate Digital Asset Frameworks, providing banks clear-cut rules for dealing with or trading digital assets while promoting a balance between risk and innovation.
- As part of the strategies to invigorate the banks' role in funding the real economy, I recommend lowering capital charges for loans to Small- and Medium-sized Enterprises (SMEs) to stimulate economic growth.
- To synergize rugged safeguards, such as enhanced liquidity buffers, with innovation-friendly policies, I suggest introducing prudent lending requirements that establish stricter limits on high-risk loans to decrease default exposure, especially for consumer credit.
