Fundamentals of Banking and Account Management

Posted on Mar 31, 2025 in Economy

Understanding Basic Banking Operations

The financial system has two primary objectives:

  • Capturing surplus financial resources (savings) while ensuring interest and security for recoverable deposits.
  • Meeting the financial needs of borrowers by providing funds, for which interest is charged.

These activities involve different types of banking operations:

  • Passive Operations: These consist of raising funds from customers (e.g., deposits) and represent the main source of funding for banks.
  • Lending Operations: These consist of the provision of money or credit availability from banks to their customers.
  • Service Operations: In these operations, the bank does not take a debit or credit position; therefore, they are not financing or investment funds. They are necessarily formalized through contracts, often related to bank accounts.

Bank Account Opening Process

Any natural or legal person with full legal capacity (typically adults possessing full powers) can apply to open a savings and/or current account. Accounts can be opened for individuals or legal entities in national or foreign currency.

The process of opening a bank account is typically as follows:

  1. Application: Submit a request to open an account.
  2. Signature Record: The bank collects personal information and specimen signatures of the holders on a signature card or similar document.
  3. Due Diligence (Bastanteo): This is used primarily for accounts associated with legal persons. It involves a study conducted by the bank’s legal department of all required documentation to verify its adequacy and authorized signatures, determining which operations can be performed and establishing the legality of the account holders.
  4. Initial Deposit: Making the first deposit into the account.
  5. Documentation Delivery: Receiving account-related documents from the bank.

Types of Bank Account Ownership

Bank accounts can be classified based on their ownership:

  • Individual Accounts: Opened in the name of one person.
  • Collective Accounts: Opened in the name of two or more persons (co-holders). These are further divided into:
    • Indistinct or Jointly and Severally Accounts: Any one of the owners may dispose of the funds; only one signature is required.
    • Joint Accounts: Require the signatures of all owners to dispose of funds. Variations exist, such as those requiring two specific signatures or the signature of one specific person along with any of the remaining holders.

How Bank Accounts Operate

Understanding bank account operation involves key terms:

  • Credits (Abonos): Entries in the credit side of the account (increases) arising from transactions favorable to the client (e.g., deposits).
  • Debits (Cargos): Entries in the debit side of the account (decreases) resulting from withdrawals, payments, or fees.
  • Deposits (Ingresos): Additions of cash or equivalent carried out by the account holder, usually credited immediately to the account.
  • Withdrawals (Retiros/Disposiciones): Cash withdrawals made from the account.
  • Balance: The amount of money in the bank account at a given time. It is calculated as follows:
    • The initial deposit amount establishes the first balance.
    • Successive balances are determined by adding subsequent credits and subtracting subsequent debits from the previous balance after each transaction.

Customer Account Code Structure

The Customer Account Code (or similar identifier like IBAN) is the unique identification for any bank deposit account. Its structure is often unified for all banks within a system (e.g., a common structure might be: 4 digits for the bank entity, 4 digits for the branch office, 2 control digits, and 10 digits for the account number).

Bank Account Cancellation

The cancellation or closure of an account means discontinuing the banking relationship for that specific account. Banks usually reserve the right to unilaterally cancel an account in the following situations:

  • Death of the individual owner.
  • Dissolution of the corporate entity holding the account.
  • Bankruptcy of the account holder.
  • Misconduct by the client, such as repeatedly presenting checks or authorizing debits without sufficient funds in the account.