Banking and Financials

How much liquidity exists in an economy in a particular period, depends on the policy of the central bank, the commercial banks, common people, and the government. The decision made by the central bank to fix the standard of money, what amount of money the commercial bank should keep as a liquid asset of giving loan and advance, or how much amount is to be invested. High liquidity is not good for commercial banks and the crisis of liquidity is not good. The commercial banks and the financial institutions should keep a fund correctly which the percent fixed from time to time for the liability of total deposit. The process of fixing the fund is fixed by the central bank from time to time. The central bank can give the interest with the rate fixed by the ban from time to time to the amount in the fund. If a commercial bank or a financial institution does not keep the stock of liquid property as per the law and policy of the central bank. There is a provision to fine them. In this way, if ...

  Mandates Sometimes, an account holder appoints a third person to act on his behalf or to do certain acts, like drawing cheques or instructing the bank to debit his account for various purposes like issuance of drafts, mail transfers, or for carrying outstanding instructions. When such authority is given to the banker in the form of an unstamped letter, signed by the customer (account holder) and addressed and submitted to the bank, it is called a mandate letter. The banker verifies the signature of the customer on the mandate letter and then, if satisfied, makes an appropriate note in his records. It may be noted that a mandate is issued by a customer generally for a short and temporary period. The bank does not accept mandate letters for a limited company, cooperative society, or trust account. In case of doubt or difficulty, with regards to the correctness of the mandate letter, the banker should insist that a power of attorney be issued in favor of the third person, which shou...

The cash amount to be sent from one bank to another bank is called remittance. This transaction can be carried out from one place to another place within a country and from one country to another country too. To carry out such transactions, the bank generally uses such means as bank draft, mail transfer, and telegraphic transfer. Such amount may be for personal use, for business transactions,s, and governmental use. The bank can discharge this task for its customers. The money sent from one place to another place within a country is called inland remittance and likewise from one country to another country is called foreign remittance. To sed cash from one place to another through remittance a bank needs to deposit cash in the bank and pay applicable charges The bank takes the charge from its customers. The bank gives advice and suggestions to all about the type of currency they need to deposit and the customers must fulfill their work. The main means of remittance are briefly given bel...

Before taking up the relationship between a banker and his customer, it is necessary to understand the meaning and definition of the terms 'Banker" and "customer" about each other. Meaning and Definition of Banker Dr. Herbert L. Hart, an author on Law of Banking based on several legal decisions, defined the term "banker" as follows: ' A banker is one who in the ordinary course of his business, honors cheques drawn upon him by persons from and for whom he receives money on current accounts." Sir John Paget, another great authority on banking has defined the term based on the essential functions performed by persons who claim to do the business of banking. According to him, "It is a fair deduction that no person or body corporate or otherwise, can be a banker who does not (1) take deposit accounts, (2) take current accounts, (3) issue and paycheques and (4) collect cheques ad uncrossed, for his customers". Hence, according to Sir John Paget...

One must have a general knowledge of the payment of the cheque. An order of any customer to the bank which is a kind of document to give the payment to any person or institution from the cash balance of his account is called a cheque. If the presented cheque is acceptable and there is enough balance in the drawer's account, the bank should honor the cheque and give the payment to the payee. The cheques  are classified into the following four types: Bearer cheque Order Cheque Crossed cheque Specially crossed cheque There are some differences in the process of the payment of all these cheques. Let's discuss those differences here. Payment of Bearer Cheque A cheque which bears the word 'own' or the name of the person who gets the payment from the bank where he has his account and the word 'Bearer" is not cut, such cheque is called 'Bearer Cheque'. They should give the payment to such cheque as per the above-mentioned process. There must be the date, the am...

There is much benefit from the measurement of bank capital. It is very difficult to measure bank capital. Really, a capable bank must find out this thing continuously. It gives a try picture of a bank. The function of the measurement of bank capital is considered very important. The bank should pay attention to the work that it performs because a bank is a sensitive institution. The financial condition of a bank can be known from the measurement of bank capital. Measurement of the bank capital gives benefits to all parties. For this, it is necessary to know the ownership of the bank capital, borrowed capital, and capital funds. the amount collected from both of these sources is bank capital. In fact, the bank capital should be considered as a measurement of the adequacy of bank capital. It can be known from its own record. For it, first of all, the sources of equity or ownership capital should be found, The following titles are the sources of ownership or equity capital The amount coll...

A bank collects capital. The capital a bank collects has different sources. The sources from which capital is collected ie. by issuing shares or by taking loans are the fundamental or main sources of bank capital. In other words, the capital can be classified into the equity capital of the bank and the borrowed capital of the bank. The capital collected by issuing the bank's shares is called share capital. The capital received from the shares, which are invested in the company by the shareholders, is legally considered the property of the bank (itself). The amount received in this way is not considered a loan of the bank. The bank does not have an obligation to return such an amount to the shareholders. the bank need not return the collected amount from the shareholders in any form until the bank is dissolved. There are two types of shares; preference shares and equity or ordinary shares. Preference shares too are of four types; cumulative preference shares, Non-cumulative preferen...

A bank has to set some criteria for providing loans. Persons who come to a bank to demand a loan, the bank should not provide loans of random choice, not by examining and investigating. If a loan is provided without proper investigation it will lose the principal and interest. Therefore, the bank always has to follow some criteria for providing loans. These are as follows: 1. Personal Character Before providing a loan, a bank should make an inquiry and examination of a person who comes to the bank with the proposal of a loan. Though it is very difficult to find out the true character of a person, it must be checked out. The bank should study whether the person has good character with the intention to pay the loan or not, whether he is a person of criminal nature or not, whether a creditor has filed a petition against him in the court for recovery of debt, or not. If the person is doubtful in nature, character, and the bank uneasiness to trust him if so, it should not accept the loan pr...

The nature and the structure of the financial institutions may be different in each institution, because the financial institutions may be of various types. The management aspects of these institutions may be different according to the provision of law. Therefore, the structure of the management of the financial institution is described hereinbelow: 1. General Meeting Any financial institution has a general meeting. The general meeting is the most powerful body of a financial institution. Hence, the general meeting is the supreme body of any financial institution. It determines policies, increases or decreases capital, removes and ads the objective of the institution. Including the election of directors, only this body has the right to do so. Such right is not provided to any authority of this institution. The board of directors should discharge the function within the power delegated by the general meeting. 2. Board of  Directors There is a board of directors in each financial ins...

Certainly, many lines of equality and inequality are drawn between the commercial banks and the financial institutions in many things, because the development of concepts of both of them has become separated. Yet, both of these institutions have become unavoidable for development. Theoretically, the commercial bank is the builder of the loan. But the financial institution is only the broker of the loan. However, the equality and inequalities between these two institutions are described as follows: Similarities between Commercial Bank and Financial Institutions Both of these two institutions are inspired by the objective of gaining profit. Both of these institutions are financial mediators. And both of them do business with different types of financial means. Both of these institutions buy the primary securities and issue the secondary securities, sell them to the last creditors. Both of these institutions establish or make a good relationship between the savers and the investors. Apart...

   ......CONTINUATION FROM BASEL FRAMEWORK SUMMARY 2013 Onward: Basel III Between 2010 and 2012, the BCBS published several documents that set out the key elements of Basel III. The requirements entered into force in 2013, but with extended transitional arrangements in many cases. Most of Basel III took the form of enhancements or amendments to Basel II/Basel 2.5, much of which was retained. The areas addressed by Basel III included capital standards, leverage and liquidity ratios, and globally systemically important banks (G-SIBs). Phase-in arrangements allowed banks until January 2019 to fully implement Basel III (with a few exceptions). There were two main reasons for this. First, banks were in recovery mode following the crisis and it took time to deleverage/de-risk balance sheets, raise new capital, revamps business strategies, and enhance risk management capabilities. Second, some aspects of the new requirements, notably about the leverage and liquidity ratios, were ...

  While the BCBS was established in 1974, it was not until 1988 that the first set of Basel requirements was agreed and issued. Since then, the structure and scope of the standards and guidelines issued have increased substantially. 1988: Basel I Basel, I was issued in 1988, though it was not fully implemented until 1992. It was intended to be applied to internationally active banks but was adopted by many other banks and regulators (being implemented in over 100 countries). Its core requirement was the establishment of a minimum capital adequacy ratio (CAR) – the amount of capital a bank should have as a percentage of its total risk exposure (risk-weighted assets or RWAs). The agreed minimum for CAR was 8%. CAR =(Regulatory Capital/RWAs) ≥ 8% Calculating RWAs involves applying a risk weight to the nominal value of an exposure. RWA = Exposure × Risk Weight For a portfolio of N exposures: RWAs = RWA A + RWA B +…+RWA N   Risk weights varied depending on the ...