Commercial bank. Functions and basic operations

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Commercial banks (CB) are organizations that serve various enterprises, legal entities and individuals. Being independent economic entities, they are considered a significant part of the overall banking system, in fact, its main link. The functions and operations of commercial banks are reduced to maximizing profits. And these organizations build relationships with customers on a commercial basis.

Commercial bank. Features

CB acts as a credit institution that has the right to perform certain banking operations. Each commercial bank, whose functions are very diverse, is engaged in comprehensive customer service. This is its main difference from other credit institutions that are not endowed with such great powers.

CBs, attracting funds from clients, have the right to place this capital on their own behalf. But at the same time on the terms of payment, urgency, repayment. It is also the responsibility of organizations to carry out settlement operations based on customer orders.

The financial resources of these banks are determined by three components:

• authorizedcapital;
• raised funds;
• retained earnings.

A commercial bank has a strictly defined management structure, where the main role is assigned to the meeting of shareholders. It is customary to convene it once a year, not counting extraordinary meetings. All shareholders may attend the meeting, but only the holders of ordinary shares have the right to vote. The Board of Directors is the operational management body of the CB, and its members are elected by the Board of Shareholders.

Commercial bank. Features

In accordance with the banking legislation, the CB has certain obligations for comprehensive customer service. The functions of a commercial bank include:

1. Accumulation and mobilization of borrowed funds. This is the most important function in which the bank acts as a borrower, since the CB has a leading role in attracting capital and its exaggeration.
2. Investing and placing borrowed funds in order to increase profits.
3. Credit intermediation is also included in the list of powers exercised by a commercial bank. Functions of this kind play an important role in expanding production and consumer demand.
4. Settlement and cash services for bank customers.

Basic CB operations

A commercial bank whose functions were listed above must also perform certain operations. These include:

1. Deposit operations - attraction of funds belonging to individuals and legal entities for the purpose of deposits for an indefinite period or on demand.
2. Providing loans at a certain percentage at the expense of borrowed funds on a return basis.
3. Opening and maintenance of client accounts.
4. Collection of means of payment.
5. Issue of securities.
6. Purchase and sale of foreign currency.
7. Operations with precious metals.
8. Financial advice and bank guarantee.

In general, all operations of commercial banks are a manifestation of their functions. Russian CBs are required to conduct all transactions in Russian rubles. Operations in foreign currency are allowed only if there is an appropriate license. In addition, banks are strictly prohibited from engaging in insurance, trading and manufacturing activities (based on federal law).