Passive Bank Operations

Due to the definition of the bank as an institution accumulating free funds, and also placing them on a return basis, it is possible to allocate passive and active operations in the activity of this organization. It is necessary to understand these concepts in more detail.

Passive Bank Operations

With the help of this type, 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 transactions, which allows increasing bank resources. Passive bank operations historically played a determining and primary role relatively active, since the second type of operations requires the availability of sufficient resources.

Russian commercial banks in their practice refer to passive operations as follows:

- acceptance of deposits;

- opening of customer accounts and their management, including accounts of correspondent banks;

- production of own financial instruments, including securities;

- issuing and receiving loans through the interbank program.

Own funds are a special form of resources. Due to this capital compensatory payments are made to creditors and depositors in the event that the bank incurred losses or became bankrupt, and these funds allow supporting all types of operations and their volumes in accordance with the objectives of the organization's activities. Own funds include statutory, reserve, as well as other special purpose funds, in addition, this includes profits that were not distributed during the year.

Passive operations of banks are concluded in the activity of accumulation and attraction of funds with a view to their subsequent placement. The operations of a commercial bank bear the following purpose:

- providing the necessary resources;

- formation of sources of funds for application in the economy;

- multiplying the incomes of legal entities and individuals, issued in the form of bank interest on deposits;

- growth of the bank's capital;

- creation of reserve insurance operations.

Passive operations of the bank are operations aimed at mobilizing funds. As a result, funds are obtained that serve as the basis for banking activities. Active banking operations are aimed at placing funds. As a result, the bank receives debit interest, which is higher than credit, paid for passive operations. The margin, that is the difference between debit and credit interest, is the most important traditional article of the banks' income.

Deposit operations are termless and urgent investments of customers. It is also customary to include a variety of savings operations. The purpose of savings deposits is the accumulation of client funds, which is issued a certificate.

Active operations of banks

This type of operations consists of credit, investment, settlement-cash, commission-intermediary. Usually, active operations involve 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. The loan is issued for real security or without it, however, it will require the provision of financial documents that characterize the relevant 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 bank operations" means, and what the essence of active operations is.