Financial Concentration and Resolution Act, 1755
 13th Cortes Federales | |
| Long title | An Act to limit the concentration of property-backed securities within the banking system; to grant the Federal Bank of Nouvelle Alexandrie authority to compel the structural separation of an over-concentrated institution; and for connected purposes. |
|---|---|
| Introduced by | Warren Ferdinand, Secretary of the Treasury |
| Extent | Entire Federation of Nouvelle Alexandrie |
| Dates | |
| Royal Assent | 25.XI.1755 AN |
| Commencement | 25.XI.1755 AN |
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| Other legislation | |
| Amendments | None |
| Related legislation |
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The Financial Concentration and Resolution Act, 1755 (Alexandrian: Loi sur la concentration financière et la résolution, 1755; Martino: Ley de Concentración Financiera y Resolución, 1755) is an act of the Cortes Federales of Nouvelle Alexandrie that wrote permanent limits on bank concentration into law following the property-backed securities crisis of 1753 AN and 1754 AN. It capped any institution's holdings of property-backed securities at 20 percent of its total assets and granted the Federal Bank of Nouvelle Alexandrie authority to compel the structural separation of an institution judged too large to fail safely.
The Act was the third and last of the three banking and recovery measures enacted under the confidence and supply agreement that sustained the government of Premier José Manuel Montero in the 13th Cortes Federales, after the Aldurian Economic Diversification and Recovery Act, 1755 and the Financial Institutions Stabilization and Homeowner Protection Act, 1755. Where those measures addressed regional recovery and the immediate damage of the crisis, this Act addressed its structural cause: the concentration of property-backed securities in a small number of institutions.
It passed the Federal Assembly on 19.XI.1755 AN by 654 votes to 60 in a form the government had not written. Treasury Secretary Warren Ferdinand had introduced a narrower measure codifying the 30 percent limit the Federal Bank had imposed by directive; a cross-party majority of the chamber's Budget and Finances Committee rewrote it, tightening the cap to 20 percent and adding the separation power, and the government accepted the stronger version to complete its banking program.
Background
The property-backed securities (PBS) market originated in the National Housing Acceleration Act, 1742, which permitted financial institutions to bundle residential mortgages and construction loans into tradeable securities. The market grew from approximately NAX€31 billion in 1738 AN to NAX€127 billion by 1753 AN, concentrated heavily in a few large lenders; at the height of the crisis, eight institutions held 71 percent of all PBS assets. The supervisory framework, designed in 1738 AN for a market a quarter of the size, set no ceiling on PBS as a proportion of a bank's assets.
The Federation had attempted structural reform of its banking sector before and failed to enact it. The Financial Systems Reform and Modernization Act, 1742, introduced in the same year as the Acceleration Act, had proposed a separation of commercial and investment banking, a cap on deposit concentration, and a standing council to monitor systemic risk; the bill was never passed. In 1751 AN the Federal Consensus Party proposed concentration limits on PBS holdings as part of a housing fund, which the government rejected as unnecessary. When the crisis broke in 1753 AN, it struck a banking system whose structural safeguards had repeatedly failed to become law.
The crisis was contained without a collapse. The Caisse Régionale de l'Alduria, a cooperative serving some 640,000 depositors in Alduria and the Wechua Nation, failed enhanced stress testing and closed a NAX€2.9 billion capital shortfall through private placement and asset sales. In I.1754 AN the Federal Bank of Nouvelle Alexandrie (FBNA) issued Directive 1754-03, capping PBS at 30 percent of a bank's total assets with a 24-month compliance period. The directive was an administrative measure, issued under the central bank's existing authority and set above the level most institutions held; critics, including the Federal Consensus Party and the Democratic Socialist Party, argued the cap was too generous and that a future governor could loosen it with a signature. Writing a stricter limit into statute became part of the banking program the Aldurian Independent Coalition secured under its confidence and supply agreement with the Montero government.
Key provisions
The Act did two things: it tightened an existing limit, and it created a power that no regulator in the Federation had held before.
The first was a statutory cap on concentration. The Act limited any financial institution's holdings of property-backed securities to 20 percent of its total assets, replacing the 30 percent ceiling the Federal Bank had set by Directive 1754-03 and placing the limit in primary legislation, where administrative action could not loosen it. Institutions above the threshold were given 36 months to comply through asset disposal or capital raising. The 20 percent figure matched the limit the Federal Consensus Party had proposed in 1751 AN.
The second was structural separation and divestiture authority. The Act empowered the Federal Bank to order an institution judged dangerously concentrated to divest business lines or separate into distinct entities where supervision and capital requirements alone could not contain the risk it posed to the financial system. An order of separation required confirmation by the Cortes Federales and was subject to review by the federal courts. It was the first power in the Federation's law to compel the breakup of an over-concentrated financial institution.
Legislative history
| Stage | Date | Chamber | Action | Votes (Y-N-A) | Details |
|---|---|---|---|---|---|
| 1 | IV.1755 AN | Federal Assembly | Introduction | – | Introduced by Treasury Secretary Warren Ferdinand as a measure codifying the Federal Bank's 30 percent directive |
| 2 | XI.1755 AN | Federal Assembly | Committee review | – | Rewritten and reported by the Budget and Finances Committee with a 20 percent cap and a structural separation power |
| 3 | 19.XI.1755 AN | Federal Assembly | Third reading | 654–60–35 | Passed |
| 4 | 23.XI.1755 AN | Chamber of Peers | Passage | – | Passed |
| 5 | 25.XI.1755 AN | – | Royal Assent | – | Signed into law by King Sinchi Roca II |
The bill began as a government measure. Treasury Secretary Warren Ferdinand introduced it to codify the 30 percent concentration limit the Federal Bank had set by directive and to add monitoring powers, a version the government expected to pass without difficulty. The Federal Humanist Party held 372 of the chamber's 749 seats and no majority on the Federal Assembly's Budget and Finances Committee, where a cross-party bloc of Federal Consensus, Democratic Socialist, Wakara, Aldurian, and Civic Governance members combined to tighten the cap to 20 percent and write in the separation power. Committee chair Timothé Plessis, a Federal Humanist, reported to the floor a bill stronger than his own party's leadership had sought. Ferdinand accepted the amended measure rather than lose it, telling the chamber he had "introduced a floor" and that "the committee raised it." The Act passed its third reading on 19.XI.1755 AN by 654 votes to 60, cleared the Chamber of Peers, and received Royal Assent on 25.XI.1755 AN.
Bill as submitted to the "Hopper" of the Federal Assembly, 1755 AN
Financial Concentration and Resolution Act, 1755
THE READING OF
A
BILL
TO
limit the concentration of property-backed securities within the banking system, and to provide for the structural separation of an over-concentrated institution; among other purposes.
Financial Concentration and Resolution Act, 1755
Presented by Warren Ferdinand, Secretary of the Treasury
Ordered, by the Cortes Federales of Nouvelle Alexandrie,
to be Printed, 1755 AN.
BE IT ENACTED by the King's Most Excellent Majesty, by and with the advice and consent of the Cortes Federales, in this present session assembled, and by the authority of the same, as follows:-
PART I
GENERAL PROVISIONS
Article 1: Citation.
- This Act may be cited as the "Financial Concentration and Resolution Act, 1755".
Article 2: Definitions.
- For the purposes of this Act:
- "property-backed security", or "PBS", means a tradeable security bundling residential mortgages or construction loans, as created under the National Housing Acceleration Act, 1742;
- "the Federal Bank" means the Federal Bank of Nouvelle Alexandrie;
- "financial institution" means a deposit-taking institution chartered or operating within the Federation of Nouvelle Alexandrie;
- "total assets" means the aggregate assets of a financial institution as reported to the Federal Bank under its supervisory framework;
- "structural separation" means the divestiture of business lines, or the division of an institution into distinct entities, ordered under Part III.
Article 3: Purpose.
- The purposes of this Act are:
- to limit the concentration of property-backed securities within any single financial institution;
- to place that limit in statute, beyond alteration by administrative action alone;
- to provide a remedy where supervision and capital requirements cannot contain the risk posed by an over-concentrated institution; and
- to reduce the danger that the failure of any one institution poses to the financial system.
CONCENTRATION LIMIT
Article 4: Statutory limit.
- No financial institution shall hold property-backed securities exceeding twenty percent (20%) of its total assets.
- The limit established under this Article supersedes the thirty percent (30%) limit imposed by the Federal Bank under Directive 1754-03.
Article 5: Transition.
- A financial institution holding property-backed securities above the limit on the commencement of this Act shall come into compliance within thirty-six (36) months, by disposal of assets or by raising capital.
- The Federal Bank shall supervise the reduction of holdings under this Article so as to avoid disorderly sales.
Article 6: Monitoring.
- Every financial institution holding property-backed securities shall report its holdings to the Federal Bank on the first business day of each month.
- The Federal Bank shall report each year to the Cortes Federales on concentration across the banking system.
STRUCTURAL SEPARATION AND RESOLUTION
Article 7: Power to order separation.
- Where the Federal Bank finds that a financial institution has grown so concentrated that supervision and capital requirements cannot contain the risk it poses to the financial system, the Federal Bank may order the institution to:
- divest one or more business lines; or
- separate into distinct entities.
Article 8: Confirmation and review.
- An order under Article 7 shall not take effect unless confirmed by a resolution of the Cortes Federales.
- An institution subject to an order under Article 7 may seek review of the order in the federal courts.
Article 9: Resolution of a failing institution.
- Where a financial institution cannot meet its capital requirements, the Federal Bank may direct its orderly resolution, imposing losses on shareholders and unsecured creditors before any commitment of public funds, and protecting insured depositors under the Comprehensive Financial Stabilization Act, 1749.
ENFORCEMENT
Article 10: Compliance and penalties.
- The Federal Bank may require a financial institution to take such measures as are necessary to comply with this Act.
- The Federal Bank may impose monetary penalties for a contravention of this Act and may restrict the activities of an institution that fails to comply.
Article 11: Administration.
- The Federal Bank shall be the primary authority for the administration and enforcement of this Act, in coordination with the Department of Treasury.
CLOSING PROVISIONS
Article 12: Commencement and application.
- This Act shall apply to all of the Federation of Nouvelle Alexandrie.
- This Act shall not become law unless it has been given Royal Assent by H.M. King Sinchi Roca II.
- This Act shall be published in the Federal Gazette and made publicly available within seven (7) days of Royal Assent.
- This Act shall come into force on the day of Royal Assent.
- In the event any provision or part of this Act is found to be invalid or unenforceable, only that particular provision or part so found, and not the entire Act, shall be inoperative.
Amendments
No amendments to date.
Voting record
The Act passed the Federal Assembly by 654 votes to 60, with 35 abstaining, the widest margin of the three banking bills. Support crossed every party, but the new power to compel a bank to break apart divided the Federal Consensus Party, whose banking and business wing balked at it even as the party claimed authorship of the 20 percent cap. The Federal Humanist Party voted for the amended bill its own leadership had not sought, with a minority of its deputies abstaining or opposing the separation power. The Democratic Socialist Party, the Wakara People's Party, the Civic Governance Alliance, and the Aldurian Independent Coalition supported it in full.
Federal Assembly third reading (19.XI.1755)
| Deputy | Region | Party | Vote | Role/Notes |
|---|---|---|---|---|
| Timothé Plessis |  Santander |
FHP |  |
Chair, Budget and Finances Committee; reported the strengthened bill |
| Francisco Gabaza | Santander |
FCP | |
Leader of the Federal Consensus Party; the 20 percent cap matched his rejected 1751 proposal |
| Tuta Hualla |  Wechua Nation |
DSP | |
Ranking member, Budget and Finances Committee; pressed for the separation power |
| Émile Bouchard |  Alduria |
Independent | |
Coordinator of the Aldurian Independent Coalition; all twelve Coalition deputies voted in favor |
| Tomás Iñiguez |  North Lyrica |
CGA | |
Floor leader of the Civic Governance Alliance |
Vote summary by party
| Political party | Yes | No | Abstain | Total | % Support |
|---|---|---|---|---|---|
| Federal Humanist Party (FHP) | 344 | 13 | 15 | 372 | 92.5% |
| Democratic Socialist Party (DSP) | 196 | 0 | 0 | 196 | 100% |
| Federal Consensus Party (FCP) | 58 | 44 | 17 | 119 | 48.7% |
| Wakara People's Party (WPP) | 20 | 0 | 0 | 20 | 100% |
| Civic Governance Alliance (CGA) | 10 | 0 | 0 | 10 | 100% |
| Aldurian Independent Coalition | 12 | 0 | 0 | 12 | 100% |
| Independent | 14 | 3 | 3 | 20 | 70.0% |
| Total | 654 | 60 | 35 | 749 | 87.3% |
Analysis
The Act was the most heavily supported of the three banking bills and, in its origin, the most unusual: the government had not written the measure that passed. Treasury Secretary Warren Ferdinand introduced a bill that would have codified the Federal Bank's existing 30 percent directive, and the Budget and Finances Committee, where the Federal Humanist Party held no majority, rewrote it into a stricter and broader law. The episode turned on the arithmetic of a chamber in which the government depended on twelve Aldurian independents for confidence and could not command a committee. Premier José Manuel Montero called the result "the system correcting itself, which is what the system is for."
For the Federal Consensus Party, the 20 percent cap was a vindication carried at a cost. The party had proposed that figure in 1751 AN and been dismissed; its leader Francisco Gabaza said that being proved right "should not have needed a crisis to make it law." The power to compel a breakup divided his party, whose banking-aligned deputies opposed it, and the Federal Consensus caucus split 58 to 44 with 17 abstaining. For the Democratic Socialist Party, the separation power was the prize. Tuta Hualla, whose Wechua Nation constituents had banked at the Caisse Régionale de l'Alduria, had pressed for it since the crisis broke.
Banking shares fell on the news, the financial sector index closing down 3.4 percent, with the steepest losses among the larger institutions most exposed to the divestiture power. Analysts described the move as a repricing of scale rather than a panic. Passage completed the three-bill program the Aldurian Independent Coalition had secured as the price of its support, and left open the question of what would hold the confidence and supply arrangement together once the bargain that created it had been met.
The order of loss the Act had written into statute was followed three years later. When the Federal Bank resolved the Caisse Régionale de l'Alduria in 1758 AN, the cooperative's members saw their shares written to nothing while their insured deposits passed intact to Quipu Bank, and no public money was committed.
See also
- PBS banking crisis, 1753-1754
- Financial Institutions Stabilization and Homeowner Protection Act, 1755
- Aldurian Economic Diversification and Recovery Act, 1755
- Comprehensive Financial Stabilization Act, 1749
- Financial Systems Reform and Modernization Act, 1742
- Federal Bank of Nouvelle Alexandrie
- Caisse Régionale de l'Alduria
