The Caldari financial system is a complex web of intertwined business relationships, corporate ownership, and multiple currencies, built on a legacy of corporate infighting and mistrust. In general, finance in the State is split between three types of banks. The most powerful tier is made up of the megacorporate parents themselves, each of which is built around a massive bank. They are the backbone of the financial system, operating as central banks for their respective corporate fiefdoms, issuing their own currency and making loans to smaller banks under their umbrella.
At the next level are the three major “independent” banks of the Caldari State: Caldari Funds Unlimited, Modern Finances, and the State and Region Bank. They are the largest remnants of the legacy finance system that existed under the Federation, and each of them is comparable in size to the largest financial institutions of the Federation, Amarr Empire, or Minmatar Republic. The major difference between these three institutions and the megacorporate banks is their liquid asset reserves. Megacorporations prefer to keep most of their assets invested in their business, rather than as cash on hand. When they need cash, they turn to these outside banks and borrow money.
Far below these two tiers are small, independent financial institutions, many of which are extremely specialized. They are also considerably less stable, being constantly threatened with hostile takeovers by larger and more powerful corporations. All of them in some way depend on the megacorporate system to survive, simply due to the way the Caldari State operates.
In any discussion of the Caldari economy, the importance of corporate scrip must be understood. Scrip evolved during the secret Caldari colonization of the regions that went on to become the Caldari State. In an effort to keep these operations off the official corporate books, workers on corporate colonies were paid in scrip. While it had a set exchange rate with Federation currency, it could only be exchanged by the corporate bank that issued it. On isolated colonies this was not a problem, as all transactions were done in scrip anyway; when workers returned to the Federation, their corporate scrip was exchanged for hard currency and marked on the books as a bonus or retirement payout.
When the Caldari seceded, corp scrip stopped being a method of avoiding Federation oversight and entered its current role as coin of the realm. The State has no national currency, unlike other nations of the cluster, and all transactions are done in some variety of corp scrip or the CONCORD-established Interstellar Kredit. Scrip differs from other currencies in that it is illegal — at least in the State — for anyone other than the issuing corporation to convert corp scrip into another currency. The single exception to this rule is Caldari Funds Unlimited, which is allowed to exchange corporate scrip at established rates due to special dispensation from the megacorporations.
The scrip system allows Caldari corporations to tightly control the value of their scrip and reduce exposure to the clusterwide currency market, as well as giving them an additional hold over employees. While it is not illegal for citizens to have scrip from corporations other than their employer, most businesses will only perform transactions with their parent corporation's scrip or ISK. The system is balanced in such a way to encourage employees to buy their employer's goods and use corp scrip to do it; things tend to be more expensive if bought with ISK. On distant worlds, where the entire colony may be completely owned by one megacorporation, competition is largely eliminated. Most workers have little choice but to buy their employer's products and pay the price their employer chooses, even if it is much more than the product is worth. Competitors' goods, if they are available at all, usually have a significant markup, making them available only to higher-paid employees.
Corporations walk a fine line here, however. If a competitor's products are seen as significantly better, or the company charges too much for its own versions, this can lead to smuggling and “grey market” sales of competitors' products. In the past, this was mostly done by independent freight operators working with local criminal groups; today, the Guristas, Serpentis Corporation, and Angel Cartel organizations have taken control of most of this trade. If taken to extremes, especially if corporate security comes down hard on the grey market, it can lead to strikes and other unrest in corporate colonies. The catalyst for the Tannolen Minedrill Riots in YC 21 was generally regarded to be the company's decision to yank the Lai Dai recreational drug “Perseverance” from store shelves, a concoction which had been extremely popular among miners in the system.
Similarly, corporate scrip is an additional deterrent to employees leaving the company and going to work for another corporation. A Sukuuvestaa Corporation employee with all her savings in Sukuuvestaa scrip who wants to go to work for Lai Dai will need to transfer all her savings into ISK at rates which are favorable to Sukuuvestaa; when she moves to a Lai Dai enclave, she will probably end up exchanging much of that ISK into Lai Dai scrip at a rate favorable to Lai Dai. Both of these transactions can put a significant dent into any employee's savings. This means that any corporation trying to poach a competitor's employee will likely have to offer more than they would otherwise.
On densely populated multi-corporate worlds like New Caldari Prime, this control is considerably weaker due to the fact that it's relatively easy to get competitors' products at comparable prices. ISK sees more frequent use on these planets and megacorporations are more likely to allow competitors to run businesses within their own corporate enclaves, making a profit off rent and fees. Especially for better-off Caldari, the goods and services available are comparable in variety and price to any non-Caldari world.
The exchange rates of the various corp scrips are determined by megacorporate currency boards. The actual rate varies based on corporate share prices, the corporation's ISK reserves, and a number of other smaller factors. They also have the right to restrict most scrip-to-ISK exchanges or vice versa, though doing so is usually a signal of serious financial trouble, with the only major exception being retirement accounts (see below). In general, megacorporations go out of their way to keep exchange rates stable, as excessive fluctuation causes the same problems that opening it up to the clusterwide currency exchange would. However, this is not always possible, largely due to the existence of underground currency exchanges in the State and elsewhere; these allow direct conversion of corp scrip to hard currency or other corporate scrip. Most of these are run by organized crime groups and/or in areas with only marginal governments, the largest being run by the Intaki Syndicate and the Guristas, much to the displeasure of the megacorporations.
Activity in the black market can and has spilled over into legitimate society, often with disastrous consequences. When speculators dumped a large volume of CBD Corporation scrip on a black market exchange in the Syndicate in YC 56, the CBD currency board reduced the amount of ISK they offered in exchange for CBD scrip. This, in turn, sent many CBD employees rushing to exchange their CBD scrip for ISK, fearing further revaluations of their savings. This heavily taxed CBD's ISK reserves, which forced the company to take out large ISK loans from Modern Finances and Caldari Funds Unlimited to meet its foreign financial obligations. The burden of these loans significantly curtailed its ability to make new investments and capital improvements in its infrastructure until the mid-60s.
Banking in the State
Retail banking or consumer banking is what the vast majority of Caldari citizens deal with on a daily basis. Savings accounts, consumer credit, and consumer loans like mortgages fall under this umbrella. For the most part, Caldari consumers will turn to their megacorporation or a subsidiary for their needs in this area. This makes it easier for megacorporations to try to control the daily lives of their citizens; not only do they hold most of their money, but they can also spot unusual trends or behavior as soon as they arise. Some small, independent consumer banks exist, but they are usually limited to large metropolitan areas. The big three independent banks handle some retail banking, but only for the richest citizens of the State with assets worth millions of ISK.
Unlike in the Federation, there is no government-backed insurance for any sort of savings account in the State. Instead, depositors must purchase private insurance for their accounts if they want to be insured against such losses. This insurance is sold by the megacorporations, one of the three large independent banks, or another independent insurer. Many Caldari choose to go without it due to the expense, especially those on the lower rungs of society. The thought of a megacorporate bank collapsing is simply beyond comprehension to the average Caldari.
This is the next level of banking and it too is largely dominated by the megacorporations. Commercial banking includes activities like business loans and holding corporate accounts. As one might expect, megacorporate subsidiaries usually turn to their parent megacorporation for these services. The three large independent banks do handle some commercial banking, largely for independent corporations and subsidiaries of foreign corporations, but their operations are dwarfed by those of the Big Eight.
Megacorporations also use their commercial banking operations to foster growth and goodwill by supporting the efforts of their citizens in starting new businesses. Many megacorporations will make loans to employees to start a new business in return for a significant share in the venture, sometimes even a controlling share. Most Caldari see this as good for both the new business owner and the megacorporation; the business owner gets a partner who is interested in his venture's success (and the funds to start work), while the megacorporation gets an opportunity for lower-risk growth. The popular CBD restaurant franchise ’Strange But Good’ was started by a former CBD cafeteria chef this way in YC 14. Today, it accounts for nearly five percent of CBD Sell Division total revenues.
Investment banking, or corporate banking, is largely the domain of the big three independent banks, Caldari Funds Unlimited, Modern Finances, and the State and Region Bank. This includes high-level financial activity like multi-billion ISK loans to corporations (up to and including the Big Eight), mediation of mergers and acquisitions, and handling of bond and stock issues. The biggest reason that the megacorporations do not dominate in this area is mistrust; despite the fact that the three “independent” banks are, to some extent, all under the sway of the megacorporations, all of them (especially CFU) retain significant autonomy and are considered neutral parties by the megacorporations.
The megacorporations depend on the independent banks for their well-being, especially Caldari Funds Unlimited, which acts as a “bank of last resort” in the State, similar (but not nearly as powerful or robust) as the Bank of Luminaire in the Federation. Without their ability to trade corporate bonds to the independent banks, the megacorporations would find it difficult to maintain the cash on hand to finance their operations. Long-term projects would be especially hard to fund, and the Caldari corporate system in general would be less stable.
Of special note is the business of retirement funds in the State. Unlike in the Federation, there is no government stipend to bolster savings for retirement nor are retirement funds taxed differently from normal savings or investment accounts, as the Caldari have very little in the way of personal taxes anyway. The major difference is that they are largely protected from megacorporate meddling, another legacy of the pre-secession period. Since the Treaty of Yulai, retirement funds are valued in ISK, and megacorporations must allow citizens to put as much ISK into those accounts as they wish.
Unlike other accounts, however, where Caldari banking regulations require banks to provide depositors free and unrestricted access to cash savings, banks are only required to provide five percent of the total value of a retirement account per annum without penalty. Withdrawing more usually incurs a heavy penalty, unless it is moved to another retirement fund. Since there is no minimum retirement age in the State, however, a Caldari worker can begin withdrawing funds from his retirement account a year after it is opened. Most megacorporations provide a small percentage of an employee's salary as matching funds (usually no more than three percent) to encourage retirement savings.
Nearly all retirement funds in the State are held by the big three independent banks; nearly seventy-five percent of all retirement funds, by asset value, are held by Caldari Funds Unlimited alone. In general, these funds tend to be invested in low-risk, slow-growth financial instruments, but citizens are free to adjust their portfolios to suit their desired level of risk. In practice, few Caldari citizens have a full understanding of the intricacies of retirement funds, and are content leave it in the hands of the fund managers.
Stability and Oversight
While the Caldari economy has been characterized as an unregulated ultracapitalist melee by Federation critics, the truth of the matter is considerably more complicated. Even the most cutthroat of Caldari corporations realize the need for a stable platform upon which to conduct their business, and the dangers that a cascade of financial failures can create. However, there is definitely a bias toward as little regulation as possible – especially when it comes to the major corporate powers of the State – and the emphasis is on regulation which contains problems when they arise, not that which prevents them. The system-wide collapse of the economy is less likely than in the other nations of the cluster, but a failing institution is much more likely to be set upon and destroyed by its rivals than to weather the storm. The Caldari assume it is better for a bad bank to fail than for it to survive and continue its destructive behavior.
These policies were set in place soon after secession and dozens of small Caldari corporations, especially financial institutions, were destroyed in the financial tumult. Millions went jobless and as much as a quarter of the State's total wealth was destroyed in the ensuing “market correction.” While painful, Caldari leaders at the time saw it as a necessary evil; Kaalakiota Corporation CEO Matias Sobaseki called it “amputating an infected limb.” In order to prevent such problems in the future and ensure that the State's financial foundation remains secure, a number of entities have oversight powers over various parts of the Caldari financial system. At the highest level, all of this oversight is approved by the Chief Executive Panel, but various institutions are in charge of actual enforcement.
House of Records
When the State was created, the megacorporations realized that the most important element of financial stability was a secure and reliable source of financial information. The House of Records was created to provide this resource. With banking regulation specifically, they are in charge of tracking the flow of money through the financial system, providing an audit trail for investors, creditors, depositors, and investigators. Every financial transaction is legally required to be reported to the House of Records, which maintains a private fluid router network in the State to handle the incredible amount of traffic this creates. Data is then stored in multiple redundant locations to prevent loss and allow for internal auditing. The security, both around the network and these datastores, is extremely tight, rivaling that of the Caldari Navy own cyberwarfare systems.
Powerful expert systems constantly churn through this mountain of data looking for suspicious activity and irregularities, which are reported to the Caldari Business Tribunal for further inspection. Even with this level of scrutiny, however, the massive amount of data involved means that things can slip through the cracks even when no foul play is involved. For a skilled money launderer, evading the House of Records through foreign transactions and complicated financial maneuvers is not a particularly difficult task. Such individuals are used by criminal syndicates to hide their activities, often in plain sight. The megacorporations themselves do not shy away from this sort of activity either, and often hide borderline illegal or highly secret activity from the House of Records, doing so under the assumption that their competitors have agents trawling the system as well.
Caldari Business Tribunal
The State's only real national law enforcement arm, the Caldari Business Tribunal is tasked with finding and prosecuting breaches of Caldari law, a mandate which extends to banking regulation. When prompted by the House of Records or requested by corporate authorities, the Tribunal is assigned the task of auditing a bank's financial records. If a bank is found to be in violation of the law, punishment can include everything from a steep fine to the seizure and sale of assets to repay creditors and depositors. The latter option is rarely used, especially against large institutions, but most banks realize that even an investigation that turns up nothing can cause serious problems; as a result, the threat of a Tribunal investigation is enough for most banks to avoid crossing the line. Individuals implicated in such investigations usually receive harsh fines or sentences of hard labor. High-ranking executives implicated in such crimes usually choose the dignity of ritual suicide rather than suffering the humiliation of such a sentence.
Caldari Providence Directorate
The Caldari Providence Directorate attempted to assert its authority in the enforcement of banking regulation, but the legal grounds for them to do so were challenged by several institutions, including Modern Finances. The Provists lacked the Tribunal's institutional memory of forensic accounting, which was a skill the Tribunal had been cultivating for over two centuries. While they were slowly gathering the talent necessary for such detailed investigations, it would have been years at least before they would have had the accumulated experience and internally developed tools that the Tribunal already had. The Tribunal also zealously guarded its jurisdiction, which had caused a great deal of friction between the Executor's office and senior Tribunal officials.
Secure Commerce Commission
As Yulai Treaty signatories, CONCORD's Secure Commerce Commission also has oversight of the Caldari financial markets, certifying transactions and technically having the authority to perform many of the same sorts of investigations as the Tribunal. However, the Caldari have historically been loathe to cooperate with the SCC, especially the Patriot megacorporations, where the more extreme elements still harbor the fear that CONCORD is acting as a Federation proxy. The House of Records generally does not voluntarily share information with the SCC unless it implicates foreign corporations in wrongdoing, and Tribunal investigators provide only the bare minimum of assistance to the SCC that the Yulai Treaty requires of them. This antipathy reached its peak last in YC 109-110, during the SCC investigation into Angel Cartel influence in a number of smaller Caldari corporations.