The structure and general characteristics of the passive bank operations
Category: Concept of the Bank and the Banking System
By passive means such transactions of banks, that result in an increase in funds held in accounts of passive or active-passive accounts in excess of the array of assets (in the balance sheet of banks active-passive accounts there).
Passive operations play an important role for commercial banks.
With their help banks get loans in the money markets.
There are four forms of passive operations of commercial banks:
a) contributions to the statutory fund (the sale of stocks and shares to the first owners);
b) deductions from the profit of the bank on the establishment or increase of funds;
c) deposit transactions (funds received from clients);
d) nondeposit operation.
Passive operations allow banks to attract funds that are already in circulation. New resources are created as the banking system as a result of active lending operations. With the first two forms of passive operations (a, b) formed the first large group of credit resources — own resources. The following two forms (c, d) passive operations form the second largest group of resources — borrowed or raised, credit resources.
Bank’s own resources are the banks’ capital and cash equivalents to him the article. The role and value of equity of commercial banks is very specific, different from enterprises and organizations engaged in other activities that the expense of equity banks cover less than 10% of the total funding requirements. Typically, the state establishes a minimum for banks border relations between own and attracted resources. Such a relationship is not established, so the variations in different banks in the ratio is very significant.
The value of the bank’s own resources first to maintain its stability. At the initial stage of establishing the bank’s own funds specifically cover priority expenditures (land, buildings, equipment, salary), without which the bank can not start their activities. From their own resources they need banks create reserves. Finally, our own resources are the main source of investments in long-term assets.
The structure of its own funds in different banks varies. They include:
charter capital;
additional capital;
reserve fund, special purpose, etc., as well as retained earnings.
Borrowed from banks cover about 90% of the demand for financial resources to carry out active operations «, primarily credit cards. Their role is extremely high. Mobilizing the available cash flow of businesses and individuals in the market of credit resources, commercial banks with their help satisfy the needs of the economy in additional working capital, contribute to making money in the capital, provide the population’s needs in consumer credit.
Both own and borrowed resources of commercial banks are reflected in the correspondent accounts opened by him in the CB. This is an active account on the balance sheet of commercial banks (30,102), so resources are reflected in the debit of the account and invest the loan of this bill.
Thus, the value of debit balance reflects the amount of free reserves of the bank (the value of its resources, which have not yet invested in active operations). The greater the amount of free reserves, the more stable the bank, but the less profit it receives. Conversely, the smaller the quantity of free reserves, the less stable the bank, but the more profit it extracts. Therefore, each commercial bank strives to optimize the balance of correspondent accounts.