Thanks to the definition of a bank as an institution that accumulates free cash and places it on a repayable basis, passive and active operations can be allocated in the activities of this organization. It is worth understanding these concepts in more detail.
Passive Bank Operations
With this type of banks form resources for work. Their essence lies in attracting various types of deposits, in issuing securities, obtaining loans from other banks, as well as in other operations, which allows to increase banking resources. Passive operations of the bank have historically played a decisive and primary role relative to active ones, since the second type of operations requires the availability of a sufficient amount of resources.
In their practice, Russian commercial banks attribute the following to passive operations:
- acceptance of deposits;
- opening and maintaining customer accounts, including those of correspondent banks;
- production of own financial instruments, including securities;
- issuing and obtaining loans under the interbank program.
Equity is a special form of resources. Thanks to this capital, compensatory payments are made to creditors and depositors if the bank incurred losses or became bankrupt, and these funds allow you to maintain all types of operations and their volumes in accordance with the objectives of the organization. Own funds contain authorized, reserve, and other special-purpose funds, in addition, profit that has not been distributed during the year is included here.
Passive operations of banks consist in the activity of accumulating and raising funds for the purpose of their subsequent placement. The operations of a commercial bank carry the following purpose:
- providing activities with necessary resources;
- the formation of sources of funds for use in the economy;
- augmentation of income of legal entities and individuals issued in the form of bank interest on deposits;
- growth of bank capital;
- Creation of reserve insurance operations funds .
Passive operations of the bank - operations aimed at raising funds. The result is funds that serve as the basis of banking. Active banking operations are aimed at placing funds. As a result, the bank receives debit interest that is higher than the credit paid on passive operations. Margin, that is, the difference between debit and credit interest, is the most important traditional item of bank income.
Deposit operations are understood as perpetual and urgent investments of clients. It is also customary to include various savings operations here. The purpose of savings deposits is the accumulation of client funds, of which a corresponding certificate is issued.
Active operations of banks
This type of operation consists of credit, investment, cash settlement, commission and intermediary. Usually, active operations are understood as the issuance of loans of various kinds. Most often there are short-term loans to economic agents, which are usually focused on the purchase of inventory items. A loan is issued with or without real collateral, however, to obtain it, it will be necessary to provide financial documents that characterize the appropriate position of the borrower, which will allow the bank to assess the possibility that the loan will be repaid in a timely manner.
Now you know what the concept of “passive operations of the bank” implies, as well as what is the essence of active operations.