Anantonese Journal of Economics and Theory

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Kalistan's Banking Industry
Highly Nationalistic, But with Many Missed Opportunities

Melissa Sharpe, Ph.D., Dept of Economics, Kaliburg Polytechnic University
Jamal Sledge, Ph.D, Dept of Finance and Accounting, Vrassa Duchy University

December 5665

Introduction
In the modern era, nothing runs without consideration of finances. The ability to lend money, the ability to save money, and the ability to invest money with an expectation of a return on investment is the primary consideration on nearly every major economic decisions, all the way from obtaining title to a home to building a major piece of public infrastructure. Everyone makes fiscal and financial considerations whether they are private individuals, business men and women or cities, Duchies and the Empire itself. Those decisions often require a modern banking system, which tends to be a source of available capital that it loans out, and collects at interest.

In most liberal economies, the banking system is expected to be free. It has what is known as fiduciary responsibility to its members. Whether those members are the shareholders, all of whom expect to make money off their investments, or the customers, who purchase shares of the bank stock with their deposits, that money is expected to be safe and secure, withdrawable on demand, and almost always earning interest for those who trust their money with the institution of the bank. In addition, it should be available to all who wish to invest in it, and abide by the ethic of return on investment alone.

As with many things, however, the imperatives of nationalism in Kalistan have led Kalistani banks down a different route. Though our banks are indeed open to all investors for investment, for the most part, they have been almost entirely ignored by foreign nationals, who prefer to put their money in banks in other countries, which are less secured against failure or expropriation, whose records are far less often times publicly available, and who are privately owned entities where the largest part of the earnings of the institution return to only the major shareholders.

The key difference is risk: Private banks in foreign nations tolerate a lot more risk than Kalistani banks do, in terms of capital reserve requirements (most banks require their banks to hold between 6 and 15 percent of their capitalization in reserve, meaning they can be freer in lending than Kalistani Reserve requirements allow Kalistani Banks to be at between 40 and 60 percent), as well as more freedom regarding who can invest in them, what the bank can lend money for, and the ability of the bank to mitigate its own risk by selling its debt to private individuals.

A short survey of the Kalistani system shows that there are three different types of banks in Kalistan, all of which promote national interests rather than the interests of finance capital. Holding off discussion of House Ananto's unique role in Kalistan's economy, this Nation has the National Bank System, which is the dominant financial institution in the Empire, the Commercial Banking system (Including the ForIn Bank) and the national Association of Small Banks. Each system plays a different role in the lives of Kalistanis, but most importantly, they exist, whether intentionally or not, for the benefit of Kalistani Nation and People first, and this, as a result makes them unattractive to foreign investors, who tend to not really care one way or another about Kalistani fiscal health. It also makes them unconducive to foreign investment.

The Nature of Kalistan's Financial System provides Kalistan maximum protection against inflation and deflation, foreign manipulation of the Kalsitani Economy, and loss of control of Kalistan's money supply, but it also works to put a brake on Kalistan's investment community, and limits our ability as a nation to increase our influence abroad because investments in ventures that offer no return on investment at all, such as virtually any reconstruction aid, are not possible through the banking structure of the Empire. We lack the ability to simply throw money into a black hole, and the result is, of course, we do not get to have a seat at the table when other nations run their affairs the way the profligate FDI sending nations can.

The National Bank System
The National Bank System (NBS) is a system of banks which act as the primary fiscal house for the Empire, all duchies, free cities and towns in the Empire of Ananto and Kalistan. The NBS is the functional arm of the Imperial Bank of Kalistan. The NBS is the home of the Treasury of the Empire. It maintains the National Account, pays all bills for the Empire, borrows and lends money for all government projects, and is the responsible fiscal agent of the Empire. It also receives all taxes, including payroll taxes paid by employers and workers, collects taxes from the sale of property and stock, and funds the bureaucracy.

There are a number of other things the National Bank does which underpins the entire Public Sector. It Prints and soaks up money based on Board of Governors directives. It controls trade in and out of the Nation and manages the Annual Trade Ledger. It pays all workers in Kalistan (because payroll is nationalized). It holds the Annual surplus and manages its dispersal. It serves as escrow for all public owned housing across the Empire. And it serves as the issuer and collector of bonds. There are multiple other functions that the National Banks System does, even while it also receives deposits from individuals and provides a small interest on those accounts. The National Bank System is crucial to not only preventing inflation, but also unemployment. Its ledger is 100 percent transparent at all times, and is available for inspection at any time. It operates branches in each Free City, as well as several town across the Empire and is one of the largest bureaucracies in the entire Empire.

The philosophical function of the NBS is to act as the Centralized Bank, and then some. It is responsible for backing Kalistani currency with transparent legers to provide a hybrid between a specie backed currency and a completely opaque fiat currency. In doing so it brings in some of the benefits of crypto currency (it transparency and public accountability) and some of the flexibility of a fiat currency, while allowing the exchange rate to float within a very narrow spectrum, driven primarily by monetary supply. The NBS is not-for profit, and it serves the Empire as THE premier financial institution to allow solid footing for the National Economy. And it does not fail its biennial audits. It has a requirement that 85% of its total deposits must be made available at any time, which make obtaining a loan from the Central Bank practically impossible, and the bank is forbidden from investing in stocks or securities that are label either moderate or high risk stocks, ensuring that any investment will be in low yield, safe stocks that have a low potential of not being able to repay the investment. The NBS is better thought of as the National Treasury.

Commercial Banks
The Commercial Banks, the Bank of Suldanor and the Bank of Kalistan, in Sulari and Kaliburg respectively. These banks operate more like private banks in that the provide loans to private actors to build things, improve things and etc. Both are specifically designed to provide capital for individuals and corporations to either start businesses or grow businesses--In the charter the mission of these banks is explicitly that they exist to enable stock speculating, currency speculating and other higher risk, higher reward investments and gambles by private institutional actors, and shall be insulated from the Kalistani economy as a whole. Consequently, though capitalization is underwritten by the NBS, the banks can never go broke because the banks can always get their money back from investors who make bad bets. Risk therefore is transferred directly onto those who borrow the money for speculation. When they win their bets, the Banks collect its money back, but when they lose, the individual who made the bad bet loses, and eventually repays his or her loan through the NBS.

Though the commercial banks appear to work more like investment banks, lending individuals and collectives money to speculate in the economy, there are some important caveats: The Banks themselves are forbidden by Charter from charging more than 4% on the loans they make to Kalistanis. While this may seem great for borrowers, it necessarily bottlenecks the amount of capital each of the Commercial Banks has on hand to lend (Commercial Banks overseas often charge what is known as prime rate, set by their central bank, plus some percentage on top of that based on the kind of loan, which guarantees that the bank can offset defaults. Kalistani lenders do not have those options and so they are far more conservative with their capitalization than capitalist Banks in other nations.)

Each Bank has National buy in as part of their capitalization, and therefore all operations are overseen by their own individual Boards, plus an Ombudsman from the NBS, to ensure that best practices are being followed in the interest of bank customers as well as its investors, and cannot, by charter do what is necessarily best for the company independent of those two constituencies. Foreign Investors can also invest in the Commercial Banks, and this was originally intended to help them bring in more money, but it was not meant to be. Consequently, a new Foreign Investment Bank was founded to complement the Commercial Banks. The ForIn Bank is a bank that is specifically for Foreign Investors.

The ForIn Bank is designed to provide foreigners a place to essentially offshore their money. It does not loan money at all. It is specifically a vault with a ledger that is secret and immune from summons at all levels, foreign and domestic. This aims to provide those who wish to shield their money from local taxes a place to do so, but also, it aims to provide black market actors and unsavory types a similar opportunity. As a result, the ForIn Bank utilizes "industry best practices" with regard to capital reserves, but it does not lend money. Deposits are insured up to ₭500,000 Imperial against bank failure, but a bank which never lends is protected against bank failure.

The bank makes its money on transaction fees: All deposits must be denominated in Kalistani Imperial Rubles. Withdraws may occur in any foreign currency, but there is a 1% transaction fee on all withdrawals in foreign currency. And as there is capital controls, 1% is less than the Cambios, but Kalistani Rubles, to date, still lack convertibility, so it does a person no good to attempt to leave the nation with Kalistani Rubles. The result is, the millions of microtransfers that occur daily have made the bank profitable. There is no telling how many foreigners have their money in Kalistan, but the ForIn Bank provides an excellent opportunity for foreigners who want to hide their money in Kalistan's tax haven, or to invest in Kalistani industry and business: Providing a withdrawal slip from ForIn Bank is as good as legal tender for foreign investors.

Association of Small Banks
While the NBS and the Commercial Banks hold by far the largest capitalization in the Empire, the vast majority of savers and loans come from one of the hundred or more members of the Association of Small Banks. This network of local credit unions, which are member owned, and who are governed by publicly elected Trustees, tend to give personal and small business accounts far better interest than any of the banks listed above. These banks are independent and often follow best banking practices for all deposits, withdrawals, investments and loans.

Deposits are guaranteed up to ₭50,000 Imperial against bank failure, which sadly happens in the private sector far more often than in the larger banks. But Credit Unions tend to provide what is in effect microloans (often less than ₭10,000) for anything ranging from home improvement, to starting a small business to buying a car. Additionally people can use the bank for writing drafts (also known as checks), which are essentially letters of credit redeemable at any ASB location, for individual savings, financial literacy for youth, and for longer term investments which provide a higher rate of return than a normal checking account, but with lower liquidity.

All ASB unions are privately owned, and except for the deposit insurance by the NBS, have no interference outside of normal business regulations. The ASBs are meant as non-profit institutions, which means their fiduciary responsibilities are to their depositors, as member-owners of the bank. The ASBs do not accept external investment in the form of stock, but all capitalization and all loans are backed by member deposits. If there is a short fall in deposits, borrowers are at risk of having their loans called early, and refusal or inability to repay loans may end up in bankruptcy. The potential for bad loans has naturally contributed to a very conservative attitude toward lending even at this direct level of interaction, and significant collateral and or downpayment is almost always required for all but the smallest personal loans. Nor can the banks easily borrow money: More frequently they will offer bonds to their members at preferential interest rates to raise additional capital.

House Ananto and Private Investment
All of these institutions, because of the constraints build into them, tend to be very conservative in lending and investment. These institutions more often tend to be functional actors that help the Empire maintain an even balance if deposits and withdrawals, and help the Empire maintain its fixation on ZPG policies. They are therefore not incredibly inviting toward foreign investment in anyway: Foreigners tend to view bank finance as a business unto itself. But Kalistanis have long been suspicious of banks as capitalist institutions, and long ago greatly restricted the power of banks to act in the interest of their investors, curtailing them to serve instead to support the National Interest, which is a stable currency, no inflation or deflation and fiat currency.

There are additional sources of investment quite apart from the Banking system. The largest single investor in the Empire is the holding company known as Miramar. It is the front operation for House Ananto. It is a public corporation, which is audited annually and publicly, and operates as a money management firm within the Empire and Abroad. It maintains accounts totaling nearly ₭1 trillion Imperial Rubles globally. Miramar invests broadly and spends much of its capital earning returns for the Royal Family, making the Royal Family and the Empress herself, one of the wealthiest families in the world. But it does not regularly invest in speculative ventures. Its largest investments are in capital development: Where others invest in a company, Miramar invests in an entire sector. It is often the earliest Institutional investor in any growth industry.

Additional institutional investors are available across Kalistan, and much of the private sector is capitalized by these institutional players. Nearly all are Kalistani investors. Much of the capital comes from various sources, whether it be success in previous business, success in farming or success in birth, or success in some other field. These institutional investors of this class tend to be associated with one of the commercial banks, who lend money for speculative ventures, and are the primary drivers of new economic expansion in the Empire at an individual enterprise level.

Conclusion
The Kalistani Banking Industry is extremely conservative in its outlook. This attitude aiming at safety and orientation toward the status quo literally permeates nearly every institution across the Empire. The result is that Kalistan frequently loses out to other, more liberal nations when it comes time to invest in foreign ventures which are the modern political proxy for international power in modern Terra. When a nation puts out a call for foreign investment to build a new dam or an airport or to fund reconstruction from a war, Kalistan always brings less to the table, it always comes later than other bids, and any bids from Kalistani banks is frequently rejected.

But additionally, because of the nature of Kalistan's banking system, which prioritizes balance of accounts, there are rarely opportunities for Kalistan to invest in other nations, because those investments are often without any potential of return on investment. Return from reconstruction aid, for example, is rarely ever realized by the investor--It is in fact simply lost to the investor. By Kalistani standards, reconstruction aid is almost always a terrible investment as it will simply never be recouped. Most speculative investment in foreign investment is similarly far riskier than Kalistan's safe waters conscious investment structure will ever permit.

As a result, we will see nations with more liberal FDI outflow laws always gain power abroad more often than Kalistan. The trade off is that Kalistan is always able to pay its debts, both private and public, without significantly threatening the National Account in anyway. Consequently, Kalistan is far better able to weather nearly every financial storm that winds its way through the liberal world. Kalistan's financial system is guided by National Interest, the chief being immunity to the ravages of the business cycle that so plagues institutions in less restrictive nations.

Our financial system in this nation reflects caution, national sovereignty and insularity over all other concerns, and a desire for a stable monetary system that is not subject to external manipulation or tidal influences. The Empire is an Fortress. We do miss out on numerous economic opportunities abroad which could make individual investors wealthier, but the trade off for the Empire is far more important than the benefit for individuals: It is the Greater Good for all Kalistanis, even if it comes at the expense of foreigners who have to beg money from usurious capitalists and who must trade their sovereignty for those loans. Kalistan is satisfied to not be a party to that usury, but instead diligently and assiduously maintains its own house against all threats to our financial health, both foreign and domestic.