That the bank is an intermediary. Commercial banks as financial intermediaries and their activities

A bank is a special company whose main function is to receive monetary resources from those people from whom they are temporarily released, and provide them to those who now need them. A bank is just one type of many different types of financial intermediaries, firms that deal with money.

Yet banks have a special place among financial intermediaries. Their importance is emphasized by the fact that all financial intermediaries are divided into two large categories: banks and non-banks. Banks differ from non-banks in that they have the ability to attract money from the population by offering people the desired types of investments, which in the financial world are called "deposits". People place their monetary resources in the bank. Since they do not use it to purchase goods and services, such voluntary cessation of consumption should be rewarded by paying interest after each year of keeping the money in the bank. This deposit money allows the bank to make loans to businesses and other people who need them (and who are reliable enough to do so).

Bank deposits are divided into two broad categories. Demand deposits allow the client to withdraw money at any desired time, but they earn very little interest. Time deposits are created for a specific purpose and cannot be withdrawn before the end of the contract period (one year, three years or five years). But the interest paid by the bank to the account owner is significantly higher and the longer the deposit term, the greater it is.

To keep the movement of financial resources under control, banks have developed a special balance sheet accounting system.

The bank's balance sheet is divided into two parts (Table 5.1). On the left side (called "assets") cash flows are deposited and go to the bank. These are household deposits and the bank's own capital. Right part (“liabilities”) shows where the bank invests its funds. The first line of assets is always occupied by required reserves - the amount intended to cover unexpected withdrawals from the left side of the balance sheet. In reality, this amount, although it belongs to the bank, is not in the bank itself, but in the central bank, which thereby controls the efficiency of banking activities. In addition, assets include loans issued and excess reserves. Excess reserves are used as an insurance fund for the bank in case of unexpected expenses, as well as as an additional source of new loans.

Table 5.1

Bank balance

Please note: total assets and total liabilities are the same. This is no accident: the bank cannot spend more funds than it has. Therefore, this information is called balance.

What happens if the population decides to withdraw 20 thousand rubles. from deposits? Liabilities will be reduced by this amount. Since there are fewer deposits, now there are only 80 thousand rubles. - the bank should hold less required reserves. Initially required reserves (RR) equaled 1 thousand rubles, i.e. 1/100 = 0.01, or 1% of deposits. The new required reserves will be R.R.= 0.01 80,000 = 800 rub. Since loans are issued for long periods, the bank cannot reduce their amount immediately. The decrease in assets will occur due to excess reserves, which will be equal to 200 rubles. The balance has returned to normal (Table 5.2).

Correspondent and intermediary banks act as third-party banks that coordinate with beneficiary banks to facilitate international fund transfers and settlement of transactions. The differences between them are incompatible; Depending on where you are from, correspondent banks are different from intermediary banks, or they may be a type of intermediary bank indistinguishable from intermediary banks.

Role of third party banks

Wire transfers - an electronic method of sending money to another person or organization - are very common transactions with all banks, but international wire transfers are more expensive and more difficult to complete.

In some parts of the world, such as Australia or EU member states, banks that handle international transfers are called intermediary banks. No distinction is made between intermediaries and correspondent banks.

Transactions in foreign currency

In other parts of the world, such as the United States, there is sometimes a distinction between specific roles for intermediary and correspondent banks.

The most commonly cited difference between the two is that correspondent banks process transactions involving more than one currency. For example, if the transferring party deals in US dollars and the receiving party is located in France, there is a correspondent bank covering all transactions from dollars to euros.

In France there is another relevant bank that deals with receiving foreign currency for the recipient. In most cases (though not always), correspondent banks are located in a country where the two currencies are domestic.

Intermediary banks route cash for foreign transactions, but these transactions do not involve multiple currencies. Most of these cases involve the establishment of a bank that is too small to handle foreign transfers, so the assistance of an intermediary bank is enlisted.

Financial intermediaries are the entire set of financial institutions operating in the economy. The essence of their intermediation is to accumulate small scattered funds of individuals who are not inclined to investment risk or have too small savings for effective investment. Financial intermediaries, having formed such a reserve, direct them in the form of loans to the most effective ways of investing capital.

Banks play the role of financial intermediaries, accepting funds from depositors and providing them as loans to borrowers. This bank activity brings real benefits to both depositors and borrowers. Depositors take advantage of the fact that their deposits perform the function of means of circulation and the function of liquid assets, and in a number of cases they also earn interest. Borrowers are taking advantage of the new opportunities to obtain loans for long periods of time. This occurs even when most small individual depositors deposit only small amounts of money with the bank, for short periods of time, usually as demand deposits.

Banks perform the function of distributing (allocating) limited credit resources between alternative ways of their further use. Preference is given to reliable investments. An issued loan can lead to permanent losses for the bank in cases where borrowers are unable to repay with interest the amount they borrowed. This can happen when credit resources are used unproductively. Bankers do a good job of making loans if they anticipate the results of their possible use. Bankers select borrowers and provide loans only to those who are able to pay the maximum interest rate on the loan issued. And also for those whose future investments themselves provide a high percentage return (construction of production enterprises, development of new technologies, acquisition of new equipment, etc.). Banks, for the most part, are joint stock, as they are relatively privately owned. Bankers are the owners of a portion of the share capital and receive maximum income in the form of dividends when the bank is most successful in issuing loans. Banks make a profit from their intermediary activities. Consequently, bankers have an incentive to pursue the most successful lending policy possible.

Issuing a loan.

Banks make a profit by accepting money from depositors and lending it to borrowers. Banks charge a higher interest rate on loans than what they pay on deposits. This excess should be enough to cover current expenses and ensure profit. In some cases, banks receive additional income as payment for their lending services and other banking operations. Banks also earn income when they invest part of their assets in securities. In this case, they are no different from ordinary shareholders and receive income from dividends.

Many people invest their money in the bank. They won't all come to the bank at the same time to get their money. In fact, the daily withdrawal of deposits is equal to the same amount of deposits made by clients. Depositors' deposits become the bank's actual reserves. From these he deducts required reserves, which by law must be deposited in a reserve account with the Bank of Russia. Bank deposits are mostly current accounts and demand deposits and are subject to immediate payment upon demand of the depositor. In the event of a “banking panic,” when a large portion of depositors withdraw their funds from deposits, the bank can use these required reserves to pay.

The bank can issue loans using its excess reserves. Typically, a loan is issued by simply transferring the loan amount to the borrower's loan account. Only the debt obligation of the borrower remains with the bank. This debt obligation transferred to the bank is not money, since it is not a generally accepted medium of exchange. The bank, by creating a loan account, created money. It is through the expansion of bank credit that most of the money used in our economy is created. After the specified period, the borrower is obliged to return the money with interest. If the borrower cannot repay the loans, the bank compensates for the damage by selling the collateral. If there is no collateral or its value is insufficient, the bank has the right to go to court. However, the bank is unlikely to get its loan back. The borrower cannot repay the loan, and the trial may drag on for a long time so that inflation depreciates the value of the loan money.

Payments by checks.

Collection is a banking operation through which a client receives funds based on a check issued by another bank. Payments by checks are based on a correspondent relationship between two banks. Correspondent banks can carry out interbank clearing, that is, carry out mutual offset of claims through non-cash payments among themselves. Collection of a check is the same banking operation, only performed on behalf of the client.

The buyer deposits the money into the buyer's bank account and receives a checkbook. Now the bank has the money, the buyer has the check. The buyer pays for goods and services received by check. Thus, the check ends up with the supplier. He presents the check for payment to his bank - the supplier's bank. This bank transfers the check amount to the supplier's bank account. The supplier's bank gives its money and receives a check in return. If the supplier's bank and the buyer's bank are connected by correspondent relations, then the following actions occur. The supplier's bank sends a coded telex, fax, teletype to the buyer's bank with a request to increase its correspondent account, that is, to pay the check in the form of an increase in its deposit with the buyer's bank.

The second method of collection is that the supplier’s bank can simply transfer money from the correspondent account of the buyer’s bank to the supplier’s current account. The check has been collected. Since banks deal with a large number of clients, during collection checks go from one bank to another and back, and their correspondent accounts generally remain at a certain level. In cases where banks do not have correspondent relations, collection is carried out through Clearing Houses, OPERA, and RCC (cash settlement center). The supplier's bank and the buyer's bank have correspondent accounts with these institutions. And this institution, having received a check for collection, increases the correspondent account of the supplier’s bank and reduces the correspondent account of the buyer’s bank by the amount of the check.

Of course, this process takes much more time than direct collection. Usually, collection through intermediaries is carried out when banks are located not in the same city, but in different places in Russia.

There are 2 types of checkbooks:

- non-limited check books are valid for a year from the date of issue;
- limited - 6 months;

Checks issued are valid for 10 days, not counting the day they are issued. In case of payments by checks, the supplier will completely protect himself from doubts regarding the timing of settlement with the buyer and will speed up payment. When a buyer applies for a limited passbook, he simultaneously submits a payment order for deposit of funds. When issuing an unlimited book, a current account is opened from which checks are paid.

Savings checking checks have a slightly different configuration (they settle in the same way). Firstly, they are issued and accepted for payment only at branches of Sberbank of Russia (if the check is Russian). Secondly, checks are issued for amounts up to 100 thousand rubles. Thirdly, checks are issued and accepted for payment upon presentation of the client’s passport. And fourthly, they are only valid for 4 months.

Calculation of payment requirements.

When making payments using payment requests, the recipient of funds submits to the bank serving him a settlement document containing a requirement for the payer to pay the recipient a certain amount through the bank for the service or product provided. Mutual settlement of banks is carried out in the same way as in settlement by checks. A payment request settlement scheme called “Acceptance settlement form” is attached. Settlements with claims with acceptances means that there must be the payer’s agreement to pay the claim presented to him. The acceptance form of payment is used by enterprises mainly for payment for goods and services. Without an acceptance form, payments are mainly made for utilities, telephone claims, postal and telegraph services, etc.

The payer must monitor incoming payment requests in order to promptly refuse consent to payment in full or in part. The bank may set a refusal period. Depending on the time of submission of acceptance, consent to payment can be subsequent or preliminary. Moreover, the payer reserves the right to declare a complete or partial refusal to accept. When making payments by subsequent acceptance, claims are paid during the day as they are received by the payer’s bank; preliminary acceptance - the next day after the expiration of the acceptance period.

Calculation by payment orders.

Oddly enough, in Russia the form of payment by payments (payment orders, demands, demands-orders) prevails over the form of payment by checks. A payment order is a written order from the payer to his servicing bank to transfer a certain amount of money from his account to another enterprise in the same or another same-city or out-of-town bank.

Payment orders are used to pay suppliers in the case of prepayment or by agreement, as well as when taxes are transferred and employees' salaries are transferred to their accounts in Sberbank. Orders are valid for 10 days from the date of issue.

Now a new form of payment has been adopted between enterprises using “demands-orders”. In this case, the supplier sends a payment request with attached shipping documents directly to the paying buyer, without presenting them to the bank. After receiving them, the buyer checks and clarifies the amount, then issues a payment order to his bank to transfer funds. In this case, errors and claims when making payments through banks are excluded.

The first bank was created as a commercial organization that served the trade and market infrastructure. At that time, it seemed enough to simply open a bank account through which all market transactions were carried out.

But as supply and demand increased, banks also began to develop and became a full-fledged component of the modern economy as intermediaries.

What is a financial intermediary in simple words?

They allow suppliers and consumers to cooperate without unnecessary risks. There are several classifications of intermediary activities of banks: deposit and non-deposit.

Signs of banks as financial intermediaries:

they have the ability to issue their own debt obligations, which include bills and bonds, certificates of deposit and acceptances. This is their distinguishing feature compared to brokers who do not have the right to issue their debt obligations;
Each bank forms its obligations by receiving fixed amounts (deposits) from citizens, which are placed in bank accounts. Such obligations are characterized by an increased degree of risk, because the money must be returned and the deposit paid in full in any case;
they receive payment for their help. The commission of an intermediary bank is the fee that the intermediary receives for opening and servicing various types of current accounts. Its size in each organization is determined individually;
banks in the course of their activities have the opportunity to attract borrowed funds, and usually the amount of their own capital is no more than 10% of the balance sheet. This feature makes them too susceptible to negative processes occurring in the economy.

Functions of modern banks

The brokerage (intermediary) function in this case is one of the main ones. In other words, banks simply bring together lenders and borrowers because they have complementary needs.

For lenders, this is an opportunity to slightly increase their wealth, and for borrowers, to receive a certain amount of capital. Such cooperation allows both the borrower and the lender to avoid risks. After all, the responsible person for a particular case will be the bank.

In the process of providing intermediary services, banks have the right to additionally certify their clients (for example, assign them a credit rating), advise borrowers and lenders, act as intermediaries in the circulation of securities on the market, and much more.

For each transaction, the intermediary receives a profit in the form of commissions.

A banking organization must be able not only to act as an intermediary, but must know how to properly transform assets. This means that when cooperating with two parties, the bank simply changes the financial requirements of the transaction in its favor.

In other words, deposit programs provide lower interest rates than the loan funds that will be issued to the borrower as part of the lending program.

This is called high-quality transformation of assets, which brings considerable profit to the intermediary.

This system is successfully in demand, because if there were no banks or other credit organizations, the borrower would have to independently seek financing for their projects.

This is not only inconvenient, but also exposes the parties to additional financial risks. This can be catastrophically unacceptable for both sides.

One of the functions of banking organizations is also the issue of means of payment, which ensures the functioning of the payment system. Thanks to it, many consider banks to be the basis of such financial intermediation, but the introduction of modern technologies makes it possible to reduce the number of participating banks to a minimum.

Automation of the process of processing payment instruments by bank transfer allows you to instantly complete transactions with a minimum number of intermediaries.

There are these types of intermediary banks:

universal.
special.

Banks of the second category are specialized only in a specific direction. In some countries, banking organizations are prohibited from providing a wide range of financial services. In such situations, there is usually more than enough profit from one area of financial services and the need for others simply disappears.

Intermediation of banks in foreign exchange transactions

One of the additional intermediation services is the execution of foreign exchange transactions in the domestic and foreign currency markets. According to the Law “On Currency Regulation and Currency Control,” there are several types of currency transactions:

operations that are associated with the transfer of ownership rights to currency values. This also applies to transactions in which currency is used as a means of payment;
receiving and sending currency outside the Russian Federation;
making international transfers;
conducting settlement transactions between residents and non-residents of Russia.

There is also a division of foreign exchange transactions into current and those related to capital movements.

The bank has the right to carry out transactions for the purchase and sale of currency only if it has a license to do so. It can apply only to the domestic market or cover both foreign and domestic markets.

Intermediary banks in foreign exchange transactions must have an extended license to carry out foreign exchange transactions in the domestic market. But to buy and sell currency on the foreign market, you must have a general license.

Otherwise, the activity of an intermediary bank in the foreign exchange market and beyond will depend on its size, number of branches and reputation.

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