Warning system of the Banks crisis and banks recovery
Category: Concept of the Bank and the Banking System
The most important element in ensuring the safety of banks is a warning system of crisis. Banking legislation stipulates that in order to ensure financial security as a factor in preventing crisis, banks have:
1) to classify their assets, emphasizing doubtful and bad debts, build up reserves (funds) to cover potential losses, including a possible devaluation of securities;
2) comply with the mandatory prudential standards set by the Central Bank;
3) to host an internal control, ensuring the reliability of operations.
Apart from these preventive measures, emanating from the very commercial bank, Central Bank can also use the system of early detection of a crisis in one way or another lending institution. For this purpose, specific indicators, the indicators are calculated on the basis of balance sheets and other forms of reporting, compiled by lending institutions.
Mechanism that protects the deposits. In modern conditions the mechanism that protects deposits through the formation of the Federal Fund for insurance of bank deposits of citizens and provide funds for voluntary insurance in full until set. Legislators only prepare the relevant legislation, where a system of such protection will be spelled out in sufficient detail.
Banking monopoly and the relationships of banks with each other and their environment. Regulation of relations between the commercial bank relates to the fundamental issues of banking legislation. It covers the banking monopoly, relationships with clients and with each other.