Banks have existed for a very long time, but the question of their nature is rather ambiguous. There are even several definitions of this concept. The most common: a bank is a financial institution that deals with the accumulation of cash and savings, the provision of loans, the implementation of cash settlements, the issuance and accounting of bills and other securities, operations with foreign currencies and gold, the issue of money, as well as other tasks.
general characteristics
Banking activity is expressed in several main aspects:
- depository of money and securities;
- institution, organization;
- economic management body;
- exchange agent;
- credit company.
Legal grounds
As for any other organization, for such a structure there is a certain order clearly defined in the Federal Law. The Federal Law “Banks and Banking” says that a bank is a credit institution having the exclusive right to carry out a combination of such operations: attracting deposits from individuals and legal entities, their subsequent placement on its own behalf and at its own expense on terms of repayment, payment opening bank accounts for legal entities and individuals with their subsequent maintenance.
From an economic point of view
In modern economic theory, banks are considered as a special type of intermediaries in the financial sector. In this aspect, they are characterized by such essential features:
- like any financial intermediary, the bank works in the direction of exchanging debt obligations, that is, the bank issues its debt obligations, and the assets mobilized on such a basis are placed on its name in debt obligations issued by other issuers;
- banks form their own obligations, the basis for which are the amount of deposits. Since such a structure acts as an intermediary, it assumes unconditional obligations with a fixed amount of debt to individuals or legal entities;
- banking operations and banking activities suggest that the bank as a deposit and financial intermediary has a high level of “financial leverage”, that is, the share of borrowed funds represented in the liability structure. Credit resources are formed mainly on the basis of borrowed funds, so they become independent of internal and external factors. That is why banking should be constantly monitored by the Central Bank and other bodies;
- the bank has the right to open and maintain current, settlement, currency and other accounts, issue non-cash means of payment, as well as ensure the functioning of the entire payment system on this basis.
Collaboration with other entities
As a financial intermediary, the bank accepts cash deposits from various entities of economic relations, and then lends them to other entities for different periods. From the former, money can be returned on demand or without notice, while the latter usually need money for a long period. There are also such entities that are willing to lend money, but wish to receive them back at the moment when they are needed. At the same time, there are also subjects who need to borrow money, but with the condition of return only after a certain time period.
It turns out that they simply can’t do business directly with each other.Banking is a tool for converting short-term deposits into long-term loans. The bank works as an intermediary, accepts deposits, pays interest, issues loans, assigning higher interest to the borrower. It turns out that he frees the depositor from the need for a thorough check of the borrower's reliability.
Functions
Banking, the concept of which is considered here, has certain functions, namely: the accumulation of funds; regulation of money circulation; resource transformation. The purpose of banks during servicing depositors and borrowers is to make a profit, and this quality puts it on a par with any commercial organizations. Banking is based on the fact that the more money he can lend, the greater will be his total profit.
But the bank is not allowed to lend all the funds, since it must have enough liquid assets in order to timely meet the requirements of depositors for payments. And this is the banker's dilemma: the greater the liquidity in the form in which the funds are stored, the lower the rate of return is the result. When storing cash, that is, the most liquid form, the bank does not make a profit at all.
Bank tasks at work
The bank must observe very specific proportions in the balance between minimizing liquidity and maximizing lending to the lowest level at which work will still be safe. This task is to some extent facilitated by official regulatory authorities, but banks still have ample opportunity to conduct business.
The conflict of requirements for profitability and liquidity is a direct result of the intersection of the interests of the groups that give the organization financial resources: investors and shareholders. Shareholders own the property of the bank jointly, therefore, they are very interested in obtaining the return on capital that they originally invested. Investors provide the bulk of the funds used by the bank, so they require the ability to withdraw their funds from accounts without notice, as well as their reliable storage. The task of a good bank is the ability to reconcile the interests of these groups, otherwise either shareholders or investors will be lost.
What is the foundation?
Banking should be focused on the concentration of free capital and resources that are necessary for simple and expanded reproduction, in the rationalization and streamlining of money circulation.
Types and forms of banks
The banking system as a unity of constantly developing and interacting institutions of the credit and financial sector, engaged in the implementation of banking operations in full or in part, can be classified depending on the evaluation criterion as follows:
- by ownership, these are state, cooperative, joint-stock and mixed structures. In many countries, the central bank capital is all owned by the state, and sometimes the state owns only 50%. Banking in Russia suggests that the capital of the Central Bank is wholly owned by the state;
- in terms of legal form, banks can be divided into closed and open joint-stock companies, as well as limited liability companies;
- in terms of functional purpose, there are deposit, issuing and commercial banks. The former accept deposits from the public, the latter carry out the issue of banknotes, and the third engage in everything that is permitted by law;
- it is customary to distinguish specialized and universal banks by the nature of the operations performed. For Europe, the latter are characteristic, and for the USA, the former. It is generally accepted that specialization can increase the level of customer service, as well as reduce the cost of operations in the bank;
- by the number of branches it can be branchless and multi-branch structures;
- in the service sector - international, national, interregional and regional;
- in terms of the scale of activity, small, medium, large and consortiums, as well as interbank associations, are distinguished.
An exception
Separately, banking activities of the Russian Federation for special purposes are distinguished, while the structure performs operations as directed by executive authorities. Such banks are authorized, and state programs are involved in their financing. Elements of the banking system are also enterprises and services engaged in providing methodological, informational, scientific, personnel and communication services.
Deviation from the law
In accordance with the norms of banking law, banking activity consists in the fact that it is a professional activity of entrepreneurs in attracting financial assets for the purpose of their subsequent investment on their behalf on the terms of repayment, payment and urgency. The essence of the activity in this case is the conclusion of banking transactions by credit organizations and non-banking structures.
Illegal banking in accordance with Article 172 of the Criminal Code constitutes systematically committed unlawful acts associated with the provision of banking services. It does not matter at what time this was carried out in order to recognize her criminal punishment. For example, the presence of signs of illegal banking activities of a legal entity is raising interest at the population’s money without having the appropriate license and registration as a credit institution.
Illegal banking activity is also considered from the objective side, which distinguishes not actions without state registration or special permission, but inaction, that is, non-compliance with legislation in terms of obtaining permission or registration.
How to get started
Unlike other business structures, banks can start working only after registering with the central bank of their state. After that, the organization must provide all the documents confirming the full payment of the authorized capital, and after that it will be issued a permit that lists the operations available to the institution, as well as the currency in which they will be performed. Only then can a bank and banking activities be considered legal.
It is illegal to conduct banking activities during a judicial appeal of a decision to refuse registration, or to continue to perform operations contrary to a court order to cancel registration.
