Crafting a bill that mandates banks to share profits from customer deposit investments while ensuring no negative impact on the annual savings growth rate requires a nuanced approach. Here’s a draft:
Banking Investment Profit Sharing and Savings Protection Act of 2024
Section 1: Title and Purpose
- Title: This Act shall be cited as the “Banking Investment Profit Sharing and Savings Protection Act of 2024.”
- Purpose: To establish a framework where banks share investment profits with customers without compromising the growth rate of savings or exposing depositors to any risk of loss.
Section 2: Definitions
- Bank: Any depository institution insured by the FDIC.
- Customer Funds: Funds in deposit accounts excluding fixed-term investments.
- Investment Gains: Profits from investments made with customer funds after accounting for all related expenses.
- Savings Growth Rate: The annual percentage increase in the average savings account balance before the implementation of this Act.
Section 3: Profit Sharing Requirements
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Profit Sharing Mandate: Banks must distribute at least 20% of their annual net investment gains from customer deposits back to customers.
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Calculation of Distribution:
- Net Gains: Calculated post-expenses but pre-distribution to shareholders or reinvestment.
- Distribution Method:
- Proportionate to the average daily balance of each customer’s account over the year.
- Distributed annually into the customer’s account.
Section 4: Savings Growth Rate Protection
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Baseline Savings Growth: Before this Act’s implementation, the Federal Reserve will determine an average annual savings growth rate for the previous five years, which will serve as the baseline.
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Annual Adjustment:
- Banks must adjust their profit-sharing distribution to ensure that the post-distribution savings growth rate for customers does not fall below the established baseline.
- If necessary, banks can retain part of the profit share to maintain the baseline growth rate, but this must be reported and justified to regulatory bodies.
Section 5: Risk and Loss Management
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Customer Loss Protection: No customer will bear any financial loss from bank investments. All losses are absorbed by the bank.
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Bank Capital Requirements: Banks might need to increase their capital reserves or adjust their investment strategies to account for the profit-sharing without impacting customer savings growth.
Section 6: Transparency and Oversight
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Annual Transparency Reports: Banks must issue a report detailing:
- Investment activities and profits.
- Amount distributed to customers.
- Adjustments made to meet savings growth rate protections.
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Oversight: A new division within the FDIC or another regulatory body will be tasked with monitoring compliance, with authority to audit and enforce regulations.
Section 7: Enforcement
- Penalties:
- Non-compliance leads to fines, which are reinvested into a fund that boosts customer savings growth rates across the board.
- Repeated violations could lead to regulatory actions including restrictions on investment activities.
Section 8: Effective Date
- This Act shall become effective on January 1, 2026, allowing for a transition period.
Section 9: Review and Adaptation
- The Act will undergo a mandatory review every three years to adapt to economic changes, ensure customer benefits, and maintain bank stability.
Section 10: Severability
- If any provision of this Act or its application is held invalid, the remainder of the Act shall remain in effect.
Considerations:
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Economic Modeling: Extensive economic modeling would be required to predict the impacts on banks’ profitability vs. customer savings growth.
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Regulatory Measures: Adjustments in capital requirements or risk management might be necessary to protect both banks and customers.
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Public Understanding: There would need to be significant public education to explain how the savings rate is protected while still sharing profits.
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Bank Lobbying: Expect pushback from banking sectors regarding the impact on their operations and profitability, potentially leading to amendments or compromises in the legislative process.
This bill aims to foster a symbiotic relationship between banks and their customers, ensuring both parties benefit from the investment of deposited funds while safeguarding against any negative financial impact on savers.