Commercial banks have long been the most significant link in the country's banking system. They take on the main tasks associated with servicing business entities and the population. A commercial bank acts as a “magnet” for cash - deposits, which is why such institutions are often called deposit banks. This term has especially taken root in England.
Business principles
The main functions of commercial banks are to operate within the currently available resources. By this we can understand that the provision of loans, as well as the implementation of other operations, is carried out in a limited mode. The indicated principle in the work of banks can be implemented only under the condition of constant monitoring of the quantitative and qualitative conformity of the mobilized resources and the nature of their application. Such approaches can enhance the competition of banks in attracting customers, as well as expand the base for deposits. This improves the quality of customer service, increases the efficiency of the use of bank resources, diversifies banking operations and more.
In essence, commercial banks are independent and legally independent credit organizations. This principle is the second fundamental to their activities. While the functions of commercial banks are procedures such as ensuring freedom of action in terms of attracting resources, as well as placing mobilized funds, they are also fully responsible for the economic results of their activities. That is, the entire risk of banking operations rests with the organization.
The functions of commercial banks in the economy are also ensured by the operation of the third principle of activity — market relations are maintained with customers. When choosing customers for the bank, market criteria such as risk, liquidity and profitability become relevant.
Another principle of activity is dictated by its legal independence and economic independence. By this we mean the following: the regulation of its activities is possible only using economic methods, but not administrative ones. The state dictates certain rules of the game, and everything else is done by banking institutions. Commercial banks themselves develop and implement their own credit, investment and deposit projects. Correction of banks' behavior in the markets is carried out by regulatory bodies, which can change the rules established earlier at any time, but they are not entitled to give direct instructions on the features of the allocation or attraction of resources.
Base for activity
The main functions of commercial banks are quite diverse:
- intermediation in lending, that is, currently free financial assets are mobilized and provided for temporary use on the terms of urgency, payment and repayment to enterprises, the population and the state as a whole;
- the functions of a commercial bank include mediation in the implementation of settlements and payments on the farm;
- credit money production;
- intermediary services in the investment sphere on the basis of issue-founding activities;
- the provision of advisory services, as well as financial and economic information.
How it works?
Temporarily free financial assets concentrated in commercial banks pass into the status of loan capital.At the expense of such funds, banks provide loans to economic entities at various levels. The functions of a commercial bank include intermediary services for the budget, enterprises, institutions and the public in making payments and settlements. A special function can be called the issuance of credit instruments, with the help of which a deposit-loan issue is ensured.
The role of banks in the formation of the money supply is quite large. The functions of a commercial bank provide an opportunity to replace money as a means of circulation, payment, accumulation. And this affects the size of the money supply and the state of money circulation in general. The issuing and constituent function of commercial structures is to significantly mediate the issue and placement of bonds and shares of corporations. Despite the fact that banks have a significant amount of economic information, they can advise their clients on many issues of the economic and financial plan. The development of market relations in the sphere of the national economy leads to an increase in the role of precisely these functions.
Bank and state
The main functions of commercial banks are such that their activities become the subject of state regulation. To enter the banking market, a license is required. In Russia, the possibility of issuing these types of licenses is supposed:
- to carry out operations in which funds are used in the national currency, without the right to attract funds from individuals in deposits;
- to carry out operations in national and foreign currency without the right to attract deposits from individuals;
- to attract deposits and place precious metals. Such a license, if necessary, is issued with the document from paragraph 2 if the relevant conditions are met.
When the structure works for two years with positive dynamics, the functions of commercial banks can be significantly expanded by obtaining from the Central Bank a license to attract funds in national and foreign currency from the population in deposits. Well-established large institutions of a universal type can count on obtaining a general banking license, which gives them the right to create foreign branches or to acquire a share of the authorized capital of credit organizations that are not residents.
What can be done by law?
Russian law allows combining the traditional functions of central and commercial banks with professional activities in the securities market. This requires a license from the Federal Commission for the Securities Market. The activities of commercial banks are constantly monitored by the Bank of Russia; if they fail to perform some functions, it has the right to revoke a license issued earlier.
Who can become a founder?
The founders of commercial banks can be legal entities or individuals of the country who are interested in creating such a structure and are ready to take part in the formation of its authorized capital. The requirement for the founder in the form of a legal entity is the presence of a stable financial situation, a sufficient amount of own funds for share capital formation new financial structure, as well as the absence of arrears in payments to the budget. For an individual, the main requirement is the absence of a criminal record, as well as proof of income using tax returns.
The market economy of the Russian Federation is such that in its structure banks act as business entities. From this perspective, they can be formed in any legal form, which is also confirmed by the federal Law "On Banks and Banking". The traditional concept and functions of commercial banks are used.
In Russia, banks that are created in the form of LLCs prevail.For such a structure, the authorized capital is formed on the basis of units. For each participant there is a certain size of the share, which is prescribed in the constituent documentation. A participant may sell or give up its share in the authorized capital to one or several participants. In a special way, the charter should reflect information relating to the alienation of a share to a third party. Withdrawal from the stake when using the LLC form can be made at any time and without warning other participants.
Degree of responsibility
For the founders of the bank, it is possible to increase liability for obligations by using such legal form as additional liability company. For each participant in this case, the size of the share in the authorized capital is provided for by the constituent documentation. In this case, the participants are liable in the form of subsidies to the bank with their property in a multiple of the value of the deposits made. The constituent documentation also prescribes the amount of additional responsibility with the order of its execution, from this the very concept and functions of commercial banks follows. If one of the participants in the ODO goes bankrupt, then its responsibility is divided among all other participants in proportion to the contributions made.
Joint-Stock Company
A joint-stock bank is a commercial organization in which the authorized capital is divided into a certain number of shares that serve as a certificate of the mandatory right of shareholders regarding the organization. Members of the company are not liable for the obligations of the bank, but bear the risks of losses associated with the main activity, within the value of shares owned by them.
The essence and functions of commercial banks suggest that the bank will not be liable for obligations to shareholders, however it is fully responsible for obligations to creditors, depositors and shareholders with all property belonging to it.
OJSC
If a joint-stock bank is formed according to the principles Open joint-stock company, then open subscription to shares issued by him is allowed, by free sale. The bank has the right to issue ordinary or preferred shares - bearer or registered. Ordinary shares regardless of the time of their release, they must have the same nominal value, providing the owner with uniform rights. Preferred shares are not supposed to give the owner the right to vote, but with their help one can get priority in obtaining income from banking activities in the amounts that are specified in advance in the bank’s charter, decisions of shareholders meetings and others.
The nominal value of all types of preferred shares should not exceed 25% of the authorized capital. The functions of a commercial bank include such procedures as the issue of shares and an increase in initial capital. When issuing shares, it is required to register them with the central bank of the country. The shareholders of commercial banks in the form of OJSC have the right to alienate their shares without coordination with other shareholders by way of their free sale on the stock market.
Company
When creating a financial institution in the form of a closed joint-stock company, he does not have the right to form an open subscription to shares or offer them in other ways to a wide circle of people. A closed joint-stock bank shall not have more than 50 shareholders. If there are more of them, then the bank is given a year to transform into an open joint stock company, otherwise it will be liquidated in a judicial proceeding. For a closed joint-stock bank, the distribution of shares is carried out only among its founders or a circle of persons determined in advance.
Control
The essence and functions of commercial banks have been stated, now we can say about the management of these structures. The supreme body is the general meeting of participants or shareholders, which is convened annually to resolve issues related to changes in the bank’s charter, authorized capital, income distribution, determining the results of activities for the previous period, election of the Council and others. If the bank’s shareholders have more than 100 voting shares, they create a counting commission, the composition of which is proposed by the Board of Directors, and approval is made by the general meeting.
The current activities, functions and operations of commercial banks are determined either by the collegial executive body, or solely. Its competence includes management issues related to the current activities of the structure. The economic and financial activities of the institution are monitored through the auditor or the audit committee, elected at the general meeting of shareholders. The tasks of the auditor or the commission is to verify the results of the bank's work for a year or another period, both on its own initiative and in accordance with the decision of the general shareholders meeting. At a general meeting of bank shareholders, the bank's auditor is approved, as well as the amount of payment for the services provided by him. The number of departments available in the bank depends on its size and nature of activity, variety and complexity of services that are provided to customers.
The functions of commercial banks are an important source of financial resources for the state budget, individual citizens and non-state entities.
