Principles of activity of commercial banks
The functioning of commercial banks is based on a number of principles - a set of grounds that regulate their business activities.
Work within the limits of the resources available to the bank
The first principle of the activity of a commercial bank is to work within the limits of the really available
resources. The criteria for this principle are timing and liquidity. For example, if a bank raises funds for short periods and invests them in long-term loans, then its liquidity will be insufficient.
Economic independence
The second principle - the basis of the activities of commercial banks - is economic independence. It also implies the economic responsibility of the bank for the results of its activities. Economic independence is expressed in:
- freedom of disposal of the bank's own funds and attracted resources;
- free choice of clients and investors;
- free disposal of the bank's income.
Russian legislation provides commercial banks with economic freedom to manage their funds and income. The profit of the bank, net of taxes, is distributed in accordance with the decision of the general meeting of shareholders. It also establishes the norms and amounts of deductions to the bank's funds, the amount of dividends on shares. A commercial bank is liable with its funds and property, which may be levied foreclosure, for obligations. The commercial bank assumes the risk from ongoing operations.
Bank - participant of market relations
The third principle is that the relationship of a commercial bank with its customers is built as normal market relations. A commercial bank proceeds, first of all, from market criteria of profitability, risk, liquidity, providing loans. To monitor market trends, banks create special structural units that collect and analyze market data, including for the purposes of using international bank settlements.
Banking regulation
The regulator of commercial banks in Russia is the Central Bank. The fourth principle is that the Central Bank participates in the regulatory function indirectly, using mainly economic methods, without direct interference in the economic activities of commercial banks. The banks themselves remain the main link in banking activity, even if the Bank of Russia has a significant role in this sector of the economy. The main difference between commercial banks and the Central Bank is the lack of emission of money supply.
Certain types of banking operations
Certain types of banking operations are regulated by federal laws, for example, "On Leasing" - defines the concept, types of leasing, the legal basis for leasing payments, objects and subjects of a leasing transaction. "On mortgage" - regulates mortgage lending in Russia. The Federal Law of the Russian Federation "On Insolvency (Bankruptcy)" discloses the criteria and procedure for bankruptcy.