Agency 7: Commercial Bank
The Commercial Bank Agency is the seventh agency in the community, and first in the Economic Bureau. The agency, together with the Capital Bank Agency (agency 8), and the Industrial Bank Agency (agency 9) form the core of the community econosystem, which anchors the community’s aim of providing sustainable prosperity for all.
Participants maintain their checking and savings accounts with the bank. The bank also issues loans to agencies and villages for the acquisition or development of assets. The agency also coordinates the management of the community storehouse alongside other agencies in the Economic Bureau. The agency’s storehouse responsibilities are focused on facilities that provide services related to food production and preparation, health, and social interaction.
How the agency works
The Commercial Bank Agency is served by an executive presidency. The presidency is made up of four presidents, serving and representing married men (A), married women (B), single women (C), and single men (D). The executive presidency sets and adjusts policies and strategies that guide the agency’s operations. The presidency also runs the automated system through which the agency performs most of its operations.
The bank’s automated system is part of a community-wide system, which carries extensive information about participants. Using closed-loop control, the system’s information is updated in real time. This enables the Commercial Bank Agency to appraise loans using highly complete, credible, and accurate information. As we will see later, this has a huge impact when risk-weighting loans.[1] One outcome is that the bank needs far less reserves, even when required to do so by regulation, and means that that its money multiplier is much higher as a result.
Securing the bank
The banking system is extensively secured by several measures, which improve the integrity of transactions, and as a result, further increase the completeness of information. Information is secured by encryption and blockchain technologies. Besides giving extensive information on transactions, private data is protected. Personal information and transactions are also protected through biometric information verification, location (GPS), and other relevant details.
Besides the automated system, the Commercial Bank Agency relies on the help of the 96 village presidencies that serve their villages and the Human Relations Agency (agency 1). The village presidencies assist participants in navigating and understanding the banking system. They also receive feedback from users and transmit it to the executive presidency, which then uses it to improve the system.
What does the bank do?
As the community’s commercial banker, and as part of the Economic Bureau, the Commercial Bank Agency performs a number of roles, which help in creating money, ease the movement of funds, and support business transactions. These functions also enable the community to operate at full capacity, by enhancing equal and easy access to capital. The agency:
- Holds participants’ checking and savings accounts
- Provides commercial loans to agencies and villages
- Manages storehouse in collaboration with the Capital and Industrial Banks
Retail banking
The Commercial Bank Agency provides participants with ordinary retail banking services through the checking and savings that they hold with the bank. Participants access these services online, without having to interact with the executive presidency.
The bank’s system enhances commerce in the community by speeding up the movement of funds. It also maintains sophisticated algorithms which help participants set what they need in their checking and savings accounts, and term deposits.
In the course of their businesses, participants deposit profits from their businesses in their checking accounts. A checking account is designed to take care of frequent personal and business needs, such as food, personal care items, rent, logistical costs, and factoring expenses. The bank’s algorithm considers a participant’s business needs, and personal needs, and sets a minimum amount it deems sufficient to cover them for a specific period, depending on how frequent transactions are.
When the set limit for deposits in the checking account is reached, the system automatically transfers any surplus to the participant’s savings account. Further deposits within the specified period are directly transferred to savings. Funds in the savings account also have a ceiling. In setting this ceiling, the algorithm considers medium-term potential needs that a participant may face. It considers, for instance, their health, dependents, education needs, and business health, among others. Savings accounts earn an interest, based on average amounts and the Commercial Bank’s performance.
| Checking account | Savings account | Term deposit |
| Short-term personal expenses including food, personal effects, regular business costs | Anticipated, significant, expenses including medical bills, business expansion, education | instrument to save up to buy additional partnership interest in Capital Bank |
Movement of funds from checking account to LP partnership interest
As a participant’s business prospers, and funds reach the specified amount, the bank’s algorithm transfers the excess to term deposits. Terms deposits earn interest as well, based on the same parameters as savings. Term deposits are held until they reach $20,000, after which they are transferred to the Capital Bank and added to the limited partner’s partnership interest. Term deposits are not held to mature at a specific time, such as a month or quarter, but mature when they reach the said amount, including interest.
If a participant is still a minor dependent, they can still accumulate their term deposits. If these deposits hit $20,000 the dependent can become limited partner on reaching 16 years of age, at which point $20,000 or more, in multiples of 20,000, from their term deposit is transferred to the Capital Bank. The algorithms also help the bank control withdrawals and transfers, a crucial element in the bank’s strategy of improving its resilience and stability, while averting bank runs.
While deposits can freely be withdrawn as needed, savings and term deposits have a withdrawal limit of 2% per month. Any withdrawals above 2% need approval from the executive presidency, on advice from the village presidency for human relations that serves the account holder. The limit protects the bank from potential bank runs that can destroy them. The limit also gives the Commercial Bank greater room to use depositors’ money when providing loans to agencies, thereby enhancing the utilization of financial resources and enhancing productivity.
Providing banking services to villages and agencies
Villages, districts, and agencies have checking accounts with the Commercial Bank Agency. For villages, each village presidency that serves a respective agency of the Village Bureau (Human Relations (agency 1), Individual Stewardships (agency 2), or Business Operations (agency 3)) operates an independent account with the bank, such that a village has three accounts, each operated by a different presidency.
The same case is replicated for districts. The three district presidencies that serve District Bureau agencies at the district (Health and Nutrition (agency 4), Life Planning (agency 5), and Recreation and Arts & Recreation (agency 6)) each have a checking account with the Commercial Bank Agency, operated by the respective district presidency. Agencies’ accounts are operated by the respective executive presidencies.
Commercial loans
Villages, districts, and agencies receive the capital they need to start up and run their operations from the Capital Bank Agency. When any of these entities need a loan from the Commercial Bank, it gets the required down payment from the capital. Down payment limits the bank’s risk exposure and allows villages, districts, and agencies to participate in the acquisition of assets.
Commercial Bank loans are used to acquire assets that are then leased out to participants at a fee. The revenue collected is used to pay back loans, and the return due on the capital invested by the Capital Bank. All assets acquired by villages and districts are ultimately owned by their agency.
The Commercial Bank does not provide participants with commercial loans. This is based on, among other things, the fact that participants do not own any assets in the community besides their business, which they are helped to build through the lease/ factoring of space, inventory, and equipment from the village agencies. In other words, the absence of the opportunity to own personal assets negate
Storehouse
The community storehouse is a 15-acre complex located in the central district buildings. The storehouse comprises a stadium and a mall, which host various facilities for social interaction, business spaces, recreation, and competitive sport. The storehouse is developed with loans from the Commercial and Industrial Bank agencies and capital from the Capital Bank Agency.
Once completed, the three bank agencies collaborate in running the storehouse. Each has distinct areas of operation. The Commercial Bank Agency handles facilities concerned with food production and preparation (food processors, restaurants, and delis) and social meeting areas, including conference halls, and similar facilities. The bank hires contractors who coordinate the management of the storehouse as their stewardship.
| Commercial Bank Builds and manages facilities concerned with food/ nutrition and social meeting areas (conference halls etc) | Capital Bank Builds and manages the stadium | Industrial Bank In charge of the mall, and storage facilities |
Banking and loan making characteristics
In modern practice, commercial banks issue loans while adhering to their exposure to risk, as well as their ability to sufficiently meet customer demands, such as withdrawals. Banks typically apply the leverage ratio, and the capital adequacy ratio when calculating how much in loans they can issue, and the level of deposits needed to deal with operations, including meeting depositors’ obligations.
The capital adequacy ratio is a percentage of loans (risk-weighted assets) that a bank should have as capital. An international regulatory framework for banks known as Basel III has set this at 10.5%. This means that of the total loans that a bank makes, it needs to weigh the risk, and then have at least 10.5% of that in capital.
Typically, the community will have low risk due to the stability offered by the economic system, the access to near-perfect information, and the absence of unsecured loans to individuals. Therefore, a loan of $1,000,000 issued to an agency might be risk-weighted to $100,000. The bank would be required to have 10.5% of this ($10,500) as capital.
Since the Commercial Bank would be subject to regulatory guidelines in the area where a community is located, it would need this capital, which it obtains from the Capital Bank. The Capital Bank’s investment in the Commercial Bank is therefore an important determinant of how much in loans the commercial bank can advance.
The second measure, leverage ratio, refers to a bank’s tier 1 capital divided by its assets. Tier 1 capital for the Commercial Bank is the investment received from the Capital Bank. This is divided by assets, including loans, and, in this case, its share of assets in the community storehouse and any other assets it holds.
Creating money
the Commercial Bank creates money through the loans it issues to agencies and villages. The bank has a monopoly in banking services. Therefore, when it issues a loan, the arising deposit is banked with it, which, before the loan was created, did not exist. The new money can be used to back another loan, and so on, through a model known as fractional reserve banking. Through its activities, the bank can control the flow of money in the economy, increasing supply, tackling inflation, and spurring economic activity.
The reserve ratio is used to approximate the limit to which a bank can multiply or create new money. The money multiplier is defined as:
| money multiplier = | 1 |
| reserve ratio |
Using the Basel rate (10.5%), this can be calculated as:
| money multiplier = | 1 | = 9.524 |
| 0.105 |
This measure implies that through fractional reserve banking, the bank can multiply money (or increase the money supply in the economy) by more than 9 times.
The NewVistas banking system
The Commercial Bank will be able to leverage capital and deposits by up to 100 times. The bank will be able to achieve this through aspects of the community’s architecture, as well as its automated system, as detailed below.
First, the community requires that every participant in the community be banked. The Commercial Bank then provides cashless banking. These two aspects have the effect of putting all financial resources in the system at all times, and eliminating leaks and capital hoarding, which are consistent with cash-based systems and inadequate access to banking (resorting to alternative methods of banking). This provides more resources at the bank’s disposal.
Secondly, limits on withdrawal of savings, besides preventing bank runs, put additional funds at the disposal of the commercial bank. The bank is able to plan ahead after forecasting what it will be able to lend, and having a reasonable estimation of how much money will be withdrawn and deposited over a period of time.
Thirdly, most loans advanced by the bank are spent on real physical assets that have already been rented out, guaranteeing an income that will be used to repay the loan. This greatly minimizes or even eliminates the risk associated with the nonperformance of loans. The business plans that occasion the loans are prepared with the help of near-perfect, updated information, which greatly enhances their chances of success.
The investment options that the loans are directed to are widely diversified. Agencies, villages, and districts use loans to acquire buildings, equipment, raw materials, and educational and sports facilities, among others. They are never issued to individuals, lessening the chances that loans could be diverted to unintended uses.
Village and executive presidency’s offices and assembly hall seats
The executive presidency serving the Commercial Bank Agency has offices on the first floor, district building 7, on the western side. The trustee and regulatory agent presidencies that serve the agency have offices across from them as indicated in the graphic below. Married men (7A) president’s office is the first from the southern side, followed by married women (7B), then single women (7C), and finally, single men (7D).
Village presidencies for human relations assist the Commercial Bank in its work. They have their offices as illustrated below.
During quarterly assembly meetings, the agency’s executive presidency, and the village presidency serving human relations occupies the seat highlighted. Each division has a separate This graphic illustrates district building 5’s lower hall, which is used by married men (A) presidencies. Building 5’s upper court is used by married women (B). Single women (C) use district building 17’s lower court, while single men (D) use district building 17’s upper court.
- Risk weighting loans considers the probability that a loan will not be repaid on time, or at all. The weighting is a factor of a borrower’s characteristics, many of which, in the absence of complete and updated information, is mainly subjective and prone to errors, and future losses. The automated system would drastically reduce these risks, making the amount of deposits needed to support loans minimal.↩