Understanding Bank Liabilities and Financial Operations
Bank Liabilities and Their Importance
Operations and liabilities of a bank, or passive uptake, are of great importance to every bank. These are the activities a bank uses to collect money, mainly from the general public. For a bank to develop, it needs to acquire deposits. Without these, it is impossible to create a sufficient reserve to help place these funds in loans and investments that generate dividends, and to enable it to meet withdrawal demands requested by customers.
Current Accounts
A bank account is a contract under which a bank is obligated to comply with the orders of another person (called the “account holder”) to limit the amount of money deposited in that account that is pending, or credit has been stipulated between the parties. It is a basic tool in the banking business as it allows banks to raise money from the public, thereby obtaining funds for loans and other activities, offering customers the security of keeping their money and a flexible means of payment that is widely accepted.
In other words, current accounts or deposits are characterized by the funds in them being immediately available in cash, by any instrument provided by the entity for the amount of money contained in them: debit or credit card, checks, promissory notes, or in person at the counter.
Savings Accounts
Savings accounts are very similar to current accounts and are, by definition, cash deposit contracts, freely available. All transactions are reflected in the book that is delivered to the account holder, popularly called the “savings account.” Savings accounts are those accounts disclosed in financial institutions which are among their activities, fundraising, and the same are kept in order and available to that entity for periods longer than current account deposits.
Time Deposits
Time deposits are deposits that are formalized between the client and the bank through a document or certificate. They are agreed upon for a given date and amount, and withdrawals cannot be made or increased before the expiry of the agreed-upon period. Interest paid on these deposits is at the discretion and policy of each bank. These deposits are fundraising lines which, being negotiated at a time, are not payable at sight, and their delivery to the customer is required only on the date on which the term expires or by written notice delivered to the bank previously.
Money Tables
A money table is a job brokerage and financial activity that specifically helps solve temporal liquidity problems for companies in the real sector of the financial sector, where runners establish contacts with buyers and sellers of money but do not participate in the operation. It is a financial instrument or mechanism that specializes in short-term operations. Money tables can be framed within the money market or money and secondary markets. In the money market, because the timing of its operations are not older than six months, and in the secondary market because assets and financial instruments that are used have been cast in the primary market and, through the tables of money, move to outside parties.
Money tables basically work in two ways:
- Taking a proper position, which involves guaranteeing or warranting the operations, financing a portfolio of equity securities or third parties, which is called dealer.
- Without taking possession of its own, as financial intermediaries or brokers, combining the needs of their customers, called a brokerage operation. This is a service that connects the bidder with the plaintiff.
The procedure for offering money is to put into focus a firm order for a particular term, during which traders or brokers of the table can be put in order. The procedure is similar to the complainant of the offeror, but this indicates the amount, term, and rate at which they would be willing to close the deal.
Credit Cards
Credit cards allow people to make payments without the need for currency. A high percentage replaces the use of coins, bills, and checks. Carrying a card has become almost an obligation for the ease of paying at a supermarket or restaurant, or going to an ATM to withdraw cash.
- Cost of plastic money management tends to minimize the financial costs to all sectors involved in the operation, such as:
- Users: The cost of processing the credit is reduced by the speedy granting, in addition to receiving it at the right time. Therefore, the opportunity cost is a major factor.
- The CA: Costs are lower by automation and mass in making credit decisions and reduce operating costs by less handling of cash transactions and checks.
- Affiliates: By significant reduction in the granting of credit, less need for financing, and paperwork costs under check. Monetary authorities also have lower management expenses and reduced currency.
Short-Term and Long-Term Loans
Short-Term Loans
A short-term loan can be used for purposes such as capitalizing in a given period, whether to rehabilitate accounts receivable balances or to purchase inventory. The lender usually hopes that the loans are paid after they have been used for such purposes. For example, for accounts receivable loans, when the outstanding bills have been paid by customers, and inventory loans, when inventory is sold and the money collected. Short-term loans are generally paid within one year.
Long-Term Loans
A long-term loan is usually a formal agreement to provide funds for more than a year, and most are for any improvement that will benefit the company and increase profits. An example is the purchase of a new building to increase capacity or machinery that will make the manufacturing process more efficient and less costly. Long-term loans are usually paid from the proceeds.
Mortgage Loans
- It is the most common method for obtaining housing. This type of loan has the personal guarantee of the borrower and is secured by a dwelling, a building, or an asset. It forms part of the Land Registry and is formalized in writing. It can also work as a loan that is received from a bank which is secured by a mortgage on the house.
Variable Interest Home Loan
A loan in which the interest rate changes over the life of the operation, according to a reference.
Fixed-Rate Mortgage
A loan in which the interest rate does not vary over the life of the operation.
Joint Mortgage Interest
A loan in which the interest rate remains fixed during the early years (up to 10), while during the rest of the life of the loan, it becomes variable.