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Deposit and nondeposit operations

Category: Concept of the Bank and the Banking System

By passive credit transactions primarily include deposit transactions.

Deposit called the operations of banks to attract funds from legal entities and individuals in deposits, or on certain dates or on demand. The share deposit transactions usually account for the bulk of their liabilities.

As subjects of the deposit operations may be:

state enterprises and organizations;

government agencies;


joint-stock companies;

mixed enterprises with foreign capital;

Party and public organizations and foundations;

financial and insurance companies;

investment and trust companies and funds;

certain individuals and associations;

Banks and other lending institutions.

The objects of deposit transactions are deposits — amount of money that agents deposit transactions made by the bank for a certain time deposits on bank accounts in the applicable order of carrying out banking operations.

According to terms of deposits made to divide into two groups:

demand deposits;

time deposits (with their variety — of deposit and savings certificates).

Demand deposits — are the means for the current settlement, cost and other accounts relating to the commission calculations or intended use, as well as fixed deposits.

Due to the frequency of operations according to the accounts of operating expenses for them are usually higher than on term deposits, but because of those accounts, banks typically pay a low interest rate or not pay interest (if customers can be given various incentives), these resources for the bank’s relatively cheap. At the same time it is — the least stable part of the resources, the banks must have on them a higher operating reserve to maintain liquidity. Therefore, the best is the share of these funds in the resource bank to 30-36%.

When you open a bank account requires the client to provide certain information to protect against various types of fraud. In recent years, banks are increasingly guided by the rule of «know your customer». Particularly clearly to the selection of clients include large, internationally known banks that provide their clients with maximum service capabilities. Standard approach to verifying the customer in the world does not exist, the verification procedure is largely dependent on the country where the bank operates, and partly from the bank itself.

Usually, the account opening application form is applied, which includes questions about the company’s name and address for the last three years or more of the types of business, there may be questions about the company’s partners and their addresses, the origin of the initial capital and sources of its owners, the company’s financial condition, expected future turnover or the average account balance.

Obtained from the questionnaire data validated by the bank. In many countries, information about clients with banking history can be gleaned from publicly available databases.

Most often, for opening a corporate account with a foreign bank from the customer is required to provide references from clients of the bank, or from a known bank counsel, either from another bank.

A number of banks requires the client to get into the registry of the country of registration and the provision of a certificate of good character (certificate of good standing). Some banks set a large enough minimum balance in the account.

The Civil Code provides that the bank is obliged to conclude a contract of bank account with a client who has addressed a proposal to open an account on the pledges bank accounts for this type of environment.

The Bank shall not be entitled to refuse to open accounts except where such failure is caused by lack of opportunities to take on banking or permitted by law or other regulations. Customers are entitled to open the necessary number of settlement and other accounts in any currency.

In the agreement the bank account specified value of banking services and their due dates, processing times of payments, the liability for breach of contractual obligations, including the timing of payments, and order its dissolution, and other material terms of the contract.

To contract the client is obliged to the bank to submit the following documents:

a) notarized copies of or registration authority:

decisions of the founders (founder) on the establishment of the company and the appointment (election) of his head;

memorandum and articles of association (in cases where their presence is required by law for enterprises in the organizational-legal form);

certificate of registration;

license (if its availability to the enterprise is required);

cards with specimen signatures of persons entitled to the first and second signature and seal (state and municipal unitary enterprises can assure her of the parent organization);

b) The original:

• a certificate of registration with the tax authorities, information from the pension fund and medical insurance.

Additionally, you may submit copies of the order appointing the chief accountant (if it is not assigned a decision of the founders) and other persons entitled to the first and second signature, and some banks also require the information note on open accounts with other banks.

Branches and representative enterprises are certified copies of all the constituent documents of the parent company, a copy of the bylaws of a branch (representative office), a copy of the proxy manager of the branch (representative office), a copy of the minutes of the meeting of the founders (or order) the appointment of persons enjoying the right of first and second signature.

Non-residents to open a bank account should submit the documents, determining their legal status in accordance with the laws of the location and a copy of the authority of a national of a foreign bank. All documents must be translated into local language, legalized by the relevant embassy (consulate) and notarized.

To open a bank account an individual present a passport, foreign banks require the presentation of an identity document with a photograph, and some — the recommendation of two persons, one from an employer.

Account Agreement shall be terminated at the request of the client at any time, at the request of the bank — in two cases (only on the court).

Firstly, when the amount of funds in the account is below the minimum amount of bank regulations, or treaties, and will not be restored within a month from the date of the bank’s warning about this.

Secondly, if transactions in this account during the year, unless otherwise stipulated in the contract.

Rescission is the reason for the closure of the customer’s account. Balance in the account given to a client (transferred to another account) no later than seven days after receipt of a written application from the customer.

For demand deposits also include credit balances on correspondent accounts and demand deposits of other banks in the bank.

Term bank deposits — it funds deposited in the bank for a fixed term of the contract. According to him the owners are usually paid a higher percentage than on demand deposits and, as a rule, there are restrictions on early withdrawal, and in some cases and to replenish the deposit.

In accordance with the Civil Code, legal persons are not entitled to transfer to deposit funds to other parties (these funds to the escrow account may only be directed to the account), bank deposit agreement, in which investor-citizen, recognizes a public contract, and the condition of the contract refusal citizen the right to receive input on the first requirement is negligible.

Operating expenses of banks for term deposits, as well as reserve requirements, are generally lower than on demand deposits, but interest payments is much higher, so banks are not always beneficial. But banks are interested in attracting term deposits because they can be used for long-term investments.

Term bank deposits are divided into conventional (the deposit is kept until the onset of an event), with advance notice of withdrawal of funds (when a customer within a predetermined timeframe should apply for exemption) and the actual deposit.

Actual deposit of shelf life are divided on deposits with maturity:

30 days

from 31 to 90 days

from 91 to 180 days

181 days to 1 year

from 1 to 3 years

over 3 years.

Bank certificates. Time deposits may be made of the instrument of the bank, as well as deposit and savings certificates.

To issue savings certificates granted by banks under the following conditions:

banking activities at least two years;

publication of annual reports, confirmed by the audit firm;

compliance with banking laws and regulations of the Central Bank;

compliance with mandatory economic standards;

the presence of a reserve fund in an amount not less than 15% of the actual paid-up equity capital;

compliance with mandatory reserve requirements.

Bank certificate must be expeditious, produced as a one-off procedure, as well as a series, to be registered or bearer, their owners can be both residents and nonresidents. The certificate can not be a settlement or a means of payment for goods sold or services rendered.

Forms of certificates can be printed only on the printing companies that are licensed by the Ministry of Finance. On the form must contain the following mandatory details (the absence of any of them makes the certificate invalid):

the name of «Savings (or deposit) certificates;

number and series of certificate;

date of making the contribution or deposit;

size of deposit or deposit, issue of certificates (in words and figures);

unconditional obligation of the bank to return the amount paid and to pay the interest due;

date of demand the amount of the certificate;

rate of interest for the use of deposit or contribution;

amount of interest due (in words and figures);

interest rate during the early presentation of a certificate for payment;

name, address and the correspondent bank account opened in the Central Bank;

for a personal certificate: name and address of the depositor — a legal entity; Name and passport details of investor — an individual;

signatures of two persons authorized by the bank to sign the sort of commitment with the seal of the bank.

The Bank is entitled to place savings (deposit) certificates only after conditions of release and circulation of certificates in the territorial office of the Central Bank.

Savings deposits are beneficial to banks because they generally are long-lasting, and therefore may serve as a source of long-term investments. Their disadvantages for banks are as follows: 1. The necessity to pay higher interest on deposits and thus reduce the margin (the difference between the percentage of active and passive credit transactions). 2. Exposure to quiet contribution of different factors (political, economic, psychological), which increases the risk of rapid outflow of funds from these accounts and the loss of the bank’s liquidity. 3. Bank Failure to renew these resources on an ongoing basis.

In countries with developed market relations in the recent sharp boundaries between different types of deposits are blurred, there are bills that combine the quality of demand accounts and time deposits. In the U.S. one of these new forms of accounts are NAU accounts, deposit accounts that pay market rate of interest and at the same time, they can write a draft settlement, similar to checks, ie, use these accounts for payment.

Commercial banks in a competitive market of credit resources to constantly worry about how quantitative and qualitative improvement of their deposits. They use different methods for this (interest rates, a variety of services and facilities to investors). The order of deposit operations are regulated by internal documents of the bank. In this case, all banks comply with some basic principles of organization of deposit operations. They are as follows:

deposit operations should contribute to profit or to create conditions for a profit in the future;

deposit operations should be varied and maintained with various stakeholders;

emphasis in the organization of deposit operations should be given time deposits;

should be provided interconnection and coordination between the operations of deposit and credit transactions on the timing and amounts of deposits and loan investments;

organizing the deposit and credit transactions, the bank should seek to minimize their free resources;

bank should take measures to develop banking services, helping to attract deposits.

For passive operations, particularly on deposits, banks are obliged to create the required reserves.

According to the settlement, current and deposit accounts (excluding deposits from other banks), accounts of the budgets of various levels and extra-budgetary funds are established norms of mandatory reserves deposited at the Central Bank.

Reserve requirements are established in order to limit banks’ lending capacity and to maintain the level of money supply in circulation.

Initially, contributions to the central fund conducted by foreign banks on a voluntary basis as an insurance reserve. Since 30-ies of XX century. reserve requirements were set in an official manner and used as liquid reserves for liabilities of commercial banks on deposits of their customers, as well as a tool used by the Central Bank to control money supply in the country.

Currently, all credit institutions are required to have minimum reserves either in the form of cash to banks, either in the form of deposits at the central bank, or other highly liquid forms, defined by the central bank reserve requirement ratio is set by law or by the central bank a percentage of the amount required reserves for the balance of the passive accounts (or their increments) or on active accounts (depending on credit investments). The ratio can be set as the total of obligations or loans the bank and to a certain part thereof, may be differentiated depending on the timing of attracting resources, types of banks, the share of long-term loans in the loan portfolio and other grounds.

In most countries, compulsory and voluntary (the workers) reserves commercial banks hold at the central bank on the same non-interest bearing account — basically correspondent or reserve. In some countries, commercial banks are allowed to temporarily use a portion of these reserves for credit and other active operations.

Stable balances on reserve (correspondent) accounts are used by central banks for refinancing credit institutions and other active operations.

Many Western economists recommend that central banks pay interest on required reserves of commercial banks to encourage the last time and in due measure to meet their reserve requirements. Although this increases the operating costs of central banks in some countries (Sweden, Spain, Italy, Finland) on the part of the reserves accrued interest.

Obligation to fulfill reserve requirements arise from the receipt of the license of the Central Bank the right to perform the relevant banking and is a prerequisite for their implementation. Mandatory reserves deposited at the respective reserve accounts at the Central Bank, the interest on them are not charged.

Reserve requirement to be deposited, is regulated by banks on a monthly basis (as at 1 st of the month following the reporting period) by checking the amounts actually paid and payable to the basis of the balances of funds (calculated by the formula of average chronological reporting month) and current regulations reserve requirements.

Calculation of the amount of funds to be attributed to the 1 st of each month, and other necessary documents to the bank represents a territorial office (RCC) of the Central Bank, together with balance. When the bank makes funds not fully paid payment receipt from your correspondent account, and when overpaid — RCC returns to the correspondent bank account amount overpaid on the basis of the relevant order.

For non-deposit sources of resource mobilization include: borrowing on the interbank market, a sale of securities and repurchase, discounting bills and obtaining loans from central bank sales of bankers’ acceptances, commercial paper issuance, borrowing on the Eurodollar market, the production of capital notes and bonds .

Under the conditions of formation of the banking system much of non-deposit sources of resource mobilization has not received its development.

Banks from these sources are mainly used interbank loans and securities. In the interbank market traded funds on correspondent accounts with CBR (debit balances on these accounts).

The value of interbank credit market is that redistributing the excess to some of the banks resources, the market increases the efficiency of the use of credit resources of the banking system as a whole. Furthermore, the presence of a developed market of interbank credits allows smaller funds to keep operational reserves of banks to maintain their liquidity.

Great prospects for the banks has a non-deposit source of resources, such as issuing bonds. Banks may issue bonds in an amount not more than 25% of the share capital after the full payment of all previously issued shares. Bonds may be either registered or bearer. Repay the loan by a net profit of the bank or at its shortcomings, from the contingency fund. To affect the bond rate the bank can buy or sell them on the exchange.

In the 90th of XX century became widespread conduct repo transactions in government securities.

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