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A Fairy tale About František and Banking Regulation

A Fairy tale About František and Banking Regulation

František Goodness was sitting in his office, diligently checking the cell AI611 on sheet IFNREP-254. He was satisfied with himself. His work was important and guaranteed the proper functioning of a stable and operationally resilient financial sector. After filling in the table, the reports were automatically updated on decentralized servers, which their bank had implemented using the fifth generation of blockchain technology. This technology was beautiful, modern and reliable. The only blemish on the beauty was the fact that a new nuclear power plant had to be built outside the city to operate it, but since its canteen was built exclusively from recycled materials, the bank fulfilled the latest version of the SEG requirements without any trouble. With a delay of less than one millisecond, the data was sent to the BEA servers. František's happiness was complete and perfect.
 
Suddenly the intercom was activated. The doorman called him, surprised. A man has arrived at the building asking for consultancy. The doorman told František that he had repeatedly tried to refer the man to the latest super version of their online platform, but the man brazenly excused himself for not understanding the technology. So, what should he do?

František was taken aback in surprise. He needed time to reconcile his thoughts. He finally remembered - yes, he used to go to school a long time ago, where they told him that the bank had clients and was supposed to meet their needs. He no longer knew what the word client meant, but he subconsciously sensed that it was not a machine or an artificial intelligence.

His heart pounded - he realized that if he met the man in person, he would get at least 50 points in the bank's internal competition! More excited than ever before in the last ten years, he asked the doorman to bring the man in.

A man appeared in the doorway - actually, he was not just any man - he was a dignified old man. Wearing a shirt, tie and wool suit. František suppressed a smile and thought - yes, like from an old-fashioned film. His excitement has increased. He quickly scrolled through his virtual reality glasses to find the answer to the question of what to do when the so-called "client" arrives. In accordance with the information displayed, he asked the person in a calm voice what he wanted.

"Credit," the old man replied, adding," I want to build a little roof on my balcony for when the sun is shining."

František - for the first time that day - was completely confused. He knew what a roof is, what a balcony is and what sunshine is - but what is credit? Fortunately, despite his age (he was already 90 years old), his memory served him well. He remembered that long ago, at a RAM seminar, they talked about loans, and even he had to solve a mathematical exercise. He immediately gained a firm foothold and quickly replied, "I understand, but we do not provide credits."

At that moment, the old man — who could have easily been 110 years old — replied, "Pardon me? Am I in the right place called a bank here?"

"Of course, you're in the right place, you're in the bank," František replied politely with a smile. The old man seemed confused, very confused. And so František added: "According to the decision of the Commission of Europe approved by the member states in 2049, the banks stopped providing loans."

Because the old man, to whom František suddenly understood, stared in disbelief, František continued, as he was accustomed to lecturing in the course "History of Banking" as part of his engineering studies at the local university of economics: "The reason was that some loans were not repaid and had to be enforced. But the worst thing was that they had to be reported separately. The Commission of Europe, on the basis of a BEA recommendation, has therefore banned banks to lend money."

The old man looked even more confused. But then he got up and answered with two questions: "So what should I do now, and, by the way, how do you actually make any money? I studied economics, so I'm interested."

He is nosy, but polite, František thought. And with all the dignity of his position (he was the RCO of the bank), he replied: "I am glad to meet a fellow economist. We are the last private bank, and as such we face tough competition from state-owned banks. Our shares are traded on stock exchanges in three metropolises. The Commission of Europe owns 49%, the government also owns 49% and the rest is owned by other investors. But to answer your question: our business is the administration of Financial Transaction Tax. We do deduct 1% in tax from each transaction, which makes up the state’s revenue. For this service we receive 15% of the amount deducted. We then divide half of this amount into non-refundable subsidies and the other half is used to pay the salaries of our employees as well as other costs, "František finished.

The old man, whose face suddenly changed colour, asked in a shaky voice, "So what do you do here as the bank's risk manager?"
 
"I check the completion of the tables for BEA," said František with dignity. The old man fainted and slumped to the ground.

"Help! Help! Help!" František shouted.
 
He was woken up by his own shouting. He was sweaty, his head tingling, but he was relieved to find himself lying in his bed. He got up quickly, took a shower, had a good breakfast, and quickly calmed down. It’s 2021, Friday. A weekend in the mountains with his family is awaiting him. And today’s work will be the best it can be. At 10:00 (exactly, as always) our esteemed client, Josef Svoboda, will arrive. In Moravia, he owns a factory for the production of extremely precise cutting tools, which are the best in the world. He wants a loan for a new assembly line. He has already saved half of the money and we will lend him the other half. And as always, he will repay it two quarters earlier than he is supposed to. It's ridiculous, he still drives a car, even if he could afford a helicopter. He does not have a directive on Corporate Social Responsibility, but he employs 30 disabled people in the factory, has paved roads in a wide area and supports all local associations. And he calls me "my son"… He set off for work with a smile on his face.
 
Out of habit, he opened an e-mail before the meeting with Mr. Svoboda. He was drenched in cold sweat. His boss wrote him that he had to cancel everything today because they had forgotten at headquarters that today they were supposed to respond to a BEA study that collects the information about the cost of reporting in banks, in order to reduce those costs. František's head spun and he passed out…
 
Because every fairy tale is supposed to end well, this time it will be the same.

Fortunately, František fell on the carpet and was not injured. The impact from hitting the ground woke him up. No, no and no and no and no, he told himself. He rinsed his face with cold water and pulled out the "SME Exposures Concentration: Stability Analysis 2015-2019" file. There was one sheet of paper in it referring to the analysis stored in the data warehouse and a bottle of Jamaican rum. He knocked back a shot, unwrapped a piece of chewing gum, and called his new colleague, who has studied cultural studies. Although she had never worked in her field of study, she was able to communicate fantastically with people. "Eliška, come with me." František welcomed Mr. Svoboda in a friendly way, introduced Eliška to him as a bank credit specialist, excused himself and left the room. While Eliška cheerfully talked with Josef, František arranged an exception from the bank's rating model and arranged a discount of 0.25% p.a. for Mr. Svoboda.
 
And then he threw himself into the BEA study. Instead of going through all the analytical accounts line by line, he just exported the bank's total administrative costs and deducted the costs of the branch network, marketing, IT and risk. And in order to obtain the required costs for regulation and reporting, he conservatively multiplied the result by only 80%, because it is true that the bank also has RH, an accounting office and a kitchen.
 
With a signed contract in hand, he found Eliška and Mr. Svoboda in a friendly conversation about the differences between traditional folk costumes. After all, it's beautiful that our business is still about clients and helpful and educated employees, he thought, and smiled kindly at both of them.
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Disclaimer: The story is a work of artistic fiction, and any resemblance to living people, companies, organizations, legislation, and abbreviations or their anagrams is purely coincidental.
 

The article was published in the Bankovnictví journal 12/2020
The full text (in Czech) with the illustration can be viewed at www.bankovnictvionline.cz