With the advent of the Central Bank and the development of the system financial regulation reserves of commercial banks and credit organizations were created at the state level. At their expense, the amount of balances on the corresponding (reserve) accounts or the conditions for their replenishment are controlled. Let's take a look at what a bank's required reserves are.
General information
Bank reserves ensure the availability of funds for the uninterrupted fulfillment of payment obligations related to the return of deposits to depositors and settlements with other financial structures. In other words, they act as a guarantee. Reserves must be kept in cash monetary form as deposits in the Central Bank or in the form valuable papers to secure obligations.
Requirements
Today, in almost all countries with market economy bank is entered. The effectiveness of this instrument of financial and credit regulation has been confirmed and fundamental research, and world practice. In the Russian Federation, minimum requirements also act as a source of repayment of obligations to creditors and depositors in the event of the revocation of an organization's license to carry out operations. In practice, the return of funds constituting the reserve of the Central Bank is clearly regulated. Minimum Requirements are mainly used in the framework of financial and credit regulation in solving long-term problems of stabilizing the circulation of money and in the fight against inflation. This tool acts as a limiter on the growth rate of cash and regulates the demand for bank reserves. Its specific purpose is given in Regulation No. 342. In accordance with the definition given in this act, the use of this instrument ensures the regulation of general liquidity banking structure RF. Control of the cash mass is carried out by reducing the money multiplier.
primary goal
In practice activities financial institutions there is always the risk of unplanned losses. No institution is 100% immune from them. In this regard, in the course of functioning and in the process of risk management, each financial institution must ensure the formation of bank reserves. To guarantee its reliability, the organization is obliged to create various funds, the funds from which will be used to cover probable losses. The order in accordance with which the formation and subsequent use of them is carried out, in most cases, is established legislative acts and the Central Bank. The amount of deductions from profit before taxation is regulated by the Federal Law on taxes. Minimum amount banks' reserves are set by the Central Bank. As practice shows, the use of a "reserve" is appropriate when there is an objective need to reduce the money supply in circulation (suspend or control growth) in order to prevent the "overheating" of the economy, if this goal is achieved by limiting the credit capabilities of financial institutions by withdrawing from them a certain share of attracted funds (or increasing this part). It follows from this that the reserve of the Bank of Russia is the funds of financial institutions, accumulated as termless deposits, which should be excluded from any turnover.
Classification
Bank reserves, in general, have one purpose - to compensate for probable expenses or losses if necessary. However, they are divided into types. Thus, the required reserve is a tool through which the overall liquidity of the system is regulated. It is used by the Central Bank to ensure control of funds by reducing money accumulation in commercial banks. This mechanism limits credit opportunities financial companies and maintains at a certain level the money supply in circulation. At its core, required reserves are funds that commercial banks must keep in the Central Bank. They act as a guarantee financial fund, ensuring reliability in fulfilling obligations to their customers. Such bank reserves are created not so much in the interests of the organization itself. They act as an instrument of the state monetary policy. Being highly liquid, these assets cannot be fully utilized by financial institutions in case of unfavorable circumstances. For example, if an outflow of funds from depositors has begun in an institution, then the reserve can be used exclusively within the framework of established standard.
Fund
It is presented as part equity formed by annual deductions from profits. The reserve fund is necessary to cover losses arising in the course of the activities of a financial institution. It is also created to increase authorized capital. The rate of deductions is determined at the general meeting of shareholders. The value can be any within fixed size authorized capital. financial enterprise has the right to deduct funds in only when there is a profit. Its replenishment, therefore, is carried out due to the increase in net asset. The fund accumulates funds received by the financial institution in the course of its activities. When making transfers from profits to the fund, a banking organization provides for the use of a share of its assets exclusively in certain areas. The main one is loss coverage.
Bank reserves for probable loan losses
Their creation is subject to credit risks that may arise in the course of the activity. Such allowances help prevent fluctuations in profits when writing off loan losses. Thus, there is an impact on the amount of capital. The formation of such reserves comes from deductions that are charged to expenses for each loan. These funds are used only to cover the outstanding debt on the main obligation. These provisions are used to write off losses on loans that are uncollectible. If there is a shortage of funds, the debt recognized as unrealistic or uncollectible is included in the losses of the reporting period. Due to this, it decreases the tax base financial institution.
Funds for depreciation of securities
Every month on the last business day, investments in shares are revalued at market value. The latter should be understood as the weighted average price of one security for transactions that were made during the last day on the stock exchange or with the help of an organizer of trades. In some cases, as a market can be taken actual cost the purchase of a security on the last business date, halved. If it is below the book price, then the financial institution must create an impairment allowance. Its value should not exceed 50% of specified value. Formation is carried out on the last working date of the month in which the security was purchased. Its write-off is carried out simultaneously with the disposal of the shares. The creation of these reserves, as mentioned above, is carried out separately for each security, regardless of the increase or maintenance of their total value.
Impairment specifics
When revaluing investments, it becomes necessary to form reserves. However, the paper remains unchanged. As such, these funds are treated less as a reserve than as an accounting adjustment to the share price. At the end of the reporting month, credit institutions must re-evaluate the previously created reserves for the depreciation of investments, taking into account the market value and the number of securities.
Other types
In addition to these, there are other reserves of banks. They are combined into a group of probable losses for other assets. These include, in particular, reserves:
- Under balance sheet assets with the risk of loss.
- For a number of instruments reflected in off-balance sheet accounts.
- By term transactions.
- For other losses.
Loss classification
Possible losses of a financial organization that cause the formation of reserves should be understood as hypothetical risks in the coming periods associated with the occurrence of the following circumstances:
- An increase in the amount of expenses or liabilities compared to those previously reflected in accounting.
- Reducing the value of the credit company's assets.
- Non-fulfillment of obligations assumed by counterparties of a financial institution in connection with completed transactions (transactions concluded) or in connection with the failure to fulfill the promise of subjects, the proper repayment of debt of which is ensured by a servicing banking organization.
Of the above bank reserves the fund is considered the most effective. This is due to the fact that at the expense of the funds that form it, a financial institution can control its costs. All other bank reserves are not considered as effective. This is because increasing their size will not enhance the ability of the organization to withstand emerging adverse circumstances.
Bank's gold and foreign exchange reserves
They represent financial assets with high liquidity. are administered by the Central Bank and the Ministry of Finance. Their composition includes:
- monetary gold.
- Special borrowing rights.
- Reserve position in the World WF.
- Foreign currency.
The value of these inventories is stated at the reporting date in US dollar terms.
Purpose
Gold and foreign exchange reserves act as a financial reserve, from which, if necessary, payments of state debt can be made or budget spending. Their presence, in addition, allows the Central Bank to exercise control over the dynamics of the ruble exchange rate through interventions on currency markets. The size of this reserve should largely cover the amount of money in circulation, ensure both private and sovereign payments on external debt and guarantee 3-month imports. If such a value of gold and foreign exchange reserves is reached, the Central Bank will be able to exercise effective control over the movement of the ruble exchange rate and interest rates.
Bank reserves - funds of commercial banks and other credit institutions which they are required to keep in central bank as collateral for some of its operations in accordance with the norms of required reserves. Bank reserves, depending on the sources of coverage, are divided into special and general. Special reserves needed to recover possible damages accounts receivable or loans. A general reserves- just an addition to the special ones. They are formed depending on the decision of the general meeting of the bank for different types risks. They are created at the expense of the bank's profit, which remained after the payment of dividends to shareholders. Special reserves go to expenses banking organizations. Therefore, general reserves contribute to an increase in the size of the bank's funds, while special ones, on the contrary, reduce it. Formed reserves is a quality indicator loan portfolios bank, as well as portfolios of receivables and securities.
In Russia, the Central Bank sets the required reserves of banks as a percentage of the amount of funds raised. Banks' required deposit reserves are the highest. individuals in foreign currency and rubles. Bank reserves sufficiently guarantee the return of deposits to the population. In addition, banks' required reserves play a stabilizing role in difficult economic circumstances.
Primary reserves are assets in cash located in the bank's own vault or on deposits in other credit institutions where they are placed on a mandatory or voluntary basis. If the creation of required reserves is provided for by banking legislation, then such primary cash reserves are called legal reserve requirements.
A commercial bank is obliged to carry out the classification of assets, highlighting doubtful and bad debts, and create reserves (funds) to cover possible losses.
Thus, the required reserve ratios cannot exceed 20% of a credit institution's liabilities and may be differentiated for different credit institutions. However, the required reserve ratios cannot be changed by more than five points at a time.
In case of violation of the required reserve ratios, the Bank of Russia has the right to write off in an indisputable manner from the correspondent account of a credit institution opened with the Bank of Russia the amount of outstanding funds, and also to recover from the credit institution in judicial order fine.
The Bank is obliged to comply with the required reserve ratio deposited with the Bank of Russia, including the terms, volumes and types of attracted funds.
In case of revocation of a commercial bank's license to carry out banking operations the required reserves deposited by him with the Bank of Russia are transferred to the account of the liquidation commission (liquidator) or bankruptcy trustee and are used in the manner prescribed federal laws and published in accordance with them regulations Bank of Russia.
When reorganizing a commercial bank, the procedure for reissuing its required reserves previously deposited with the Bank of Russia is established in accordance with Bank of Russia regulations.
When using bank reserves, the bank must deposit the same amount to replenish the reserve. The required reserve ratio of banks is differentiated and depends on the size financial institution, type of funds raised, citizenship of depositors and some other conditions. Regulating the required reserve ratio within certain limits, the central bank implements its financial policy.
none credit organisation is not 100% insured against unplanned financial losses, therefore, in the course of its functioning and regulation of banking risk, the financial institution should allocate important role formation of bank reserves.
In order to ensure its financial reliability, the bank is obliged to create various kinds of reserves to cover possible losses, the procedure for the formation and use of which is established in most cases by the Bank of Russia and legislative acts. Minimum dimensions bank reserves are determined. The amount of deductions to the bank's reserves from profit before taxation is established by federal tax laws.
Types of bank reserves
It must be understood that bank reserves, although they have one general purpose- such as: in case of urgent need, expected expenses or losses, but, nevertheless, are divided into certain types.
Bank Required Reserves or Reserve Requirements
Required reserves bank or reserve requirements- are a general liquidity regulation tool used by the Bank of Russia to control cash by reducing cash accumulation commercial banks. Such a mechanism is established in order to limit the credit opportunities of financial institutions and maintain at a certain level money supply in circulation.
The required reserves of a bank are, in fact, the funds of commercial banks and other credit institutions, which they are obliged to keep in the Central Bank as a guarantee financial fund that ensures the reliable fulfillment of its obligations to customers. Basically, the task of creating required reserves is beyond the interests of a single bank, in fact, it is a tool for implementing the state's monetary policy.
Required reserves, being highly liquid assets, however, cannot be used in full in the event of adverse circumstances for the bank. For example, if an outflow of depositors' funds began in a bank, then the required reserves can be used to finance this process only within the limits of the established standard. And even an increase in the amount of required reserves due to a change in the standard does not increase the reliability of an individual bank, since in this case additional cash.
Bank reserve fund
Bank reserve fund- part of equity, formed at the expense of annual deductions from profits. The reserve fund serves to cover the bank's losses arising from its activities, and is also created to increase the authorized capital. The rate of deductions in reserve fund installed general meeting shareholders, but cannot be less than a certain amount of the authorized capital.
The reserve fund is included in the calculation of the bank's capital. The credit institution has the opportunity, at the end of the year, to make deductions to the reserve fund only if there is a profit. Thus, the reserve fund of the bank is created due to the growth net assets.
Thus, the reserve fund accumulates assets received by the bank as a result of its activities. Making transfers from profits to a reserve fund, a financial institution provides for the use of part of its assets only for certain purposes, the main of which is to cover losses.
Bank reserves for possible losses on loans
Allowance for possible losses on loans is a special reserve of the bank, the formation of which is due to credit risks in the activities of financial organizations. This reserve avoids fluctuations in the profit of banks in connection with the write-off of losses on loans, thereby affecting the amount of capital.
This reserve formed at the expense of deductions attributable to banks' expenses, and separately for each loan issued. The bank's reserve for possible losses on loans is used only to cover outstanding loan debt on the main debt by customers. At the expense of the specified reserve of the bank, losses on uncollectible loans are written off.
At the same time, bad debt and (or) recognized as uncollectible is written off from the balance sheet of the credit institution at the expense of the reserve for possible losses on loans, and if it is insufficient, it is written off for losses of the reporting year, thereby reducing the bank's taxable base. True, when forming such a bank reserve, no resources of value are used.
Bank reserves for depreciation of securities
On the last business day of each month, the credit institution's investments in securities are revalued at market value. In this case, the market price means the weighted average cost of one security for transactions made during the last trading day of the reporting month for stock exchange or through the auction organizer. In exceptional cases for market value as of the last business day of the reporting month, the actual purchase price of the security, halved, is accepted.
In the event that the market value of the security on the last business day of the reporting month (the so-called revaluation price) turns out to be lower book value security, then commercial Bank or the credit institution is obliged to create a provision for the depreciation of investments in securities in the amount of a decrease in the average market price(revaluation price) relative to the book value. In this case, the amount of the reserve should not exceed 50% of its book value.
This reserve of the bank is formed on the last business day of the month in which the security was purchased and written off simultaneously with the disposal of the security. Bank reserves are created separately for each security regardless of the preservation or increase in the value of all securities.
Revaluation of investments in securities leads to the creation of bank reserves for their depreciation, but does not change the book value of these securities. Therefore, the bank's reserve for depreciation of securities, in fact, is rather not a reserve, but an adjustment in the value of a security to account for it in the bank's balance sheet. According to the results of the reporting month, credit institutions must adjust the reserves created earlier for the depreciation of investments in securities, taking into account the number of securities and market value.
Other types of bank reserves
In addition to the main reserves of the bank listed above, there are others, combined into a group of possible losses on other assets - these include:
- bank reserve for balance sheet assets for which there is a risk of loss
- the bank's reserve for certain instruments reflected on off-balance sheet accounts accounting
- bank forward reserve
- bank reserve for other losses
It should be understood that under the possible losses of a financial institution in relation to the formation of a reserve imply hypothetical losses in the future due to the occurrence of the following circumstances:
- decrease in the value of the assets of a credit institution
- an increase in the amount of liabilities and (or) expenses of the bank compared to those previously reflected in the accounting records
- non-fulfilment of obligations by counterparties of the credit institution under transactions concluded by it (completed transactions) or as a result of non-fulfillment of promises by a person, the proper fulfillment of obligations of which is ensured by the obligation assumed by the credit institution.
Basically, of the considered reserves of the bank, only its reserve fund is effective, because only at the expense of this fund can the bank influence its expenses. All other reserves are not effective for the bank, because their increase does not contribute to strengthening the bank's ability to withstand adverse developments.
Required reserves of commercial banks– funds of credit institutions, which they must keep as a mandatory reserve in a correspondent account with central banks. The mandatory reserve system is introduced to ensure the obligations of banks on placed deposits, as well as to regulate the amount of money in circulation.
See what "Required reserves of commercial banks" are in other dictionaries:
Required Bank Reserves- funds of commercial banks and other credit institutions, which they are obliged to keep in the central bank as security for some of their operations in accordance with the norms of required reserves. Required reserves are... Financial vocabulary
OBLIGATORY RESERVES OF BANKS- funds of commercial banks, other credit institutions, which they are obliged to keep in the central bank as security for some of their operations in accordance with the norms of required reserves. The size and structure of such reserves ... ... Encyclopedic Dictionary of Economics and Law
Required Bank Reserves- funds of commercial banks and other credit institutions, which they are obliged to keep in the central bank as security for some of their operations in accordance with the norms of required reserves ... Terminological dictionary of a librarian on socio-economic topics
RECOVERY OF UNDER PAYMENT OF MANDATORY RESERVES FROM COMMERCIAL BANKS- recovery by a territorial office (cash settlement center) of the Bank of Russia sums of money from commercial banks that are sent to replenish the required reserves, and fines for violating the reservation procedure, starting from the third ... ... Big accounting dictionary
RESERVES MANDATORY Economic dictionary
BANK RESERVES MANDATORY- funds of commercial banks and other credit institutions, which they are obliged to keep in the central bank as security for some of their operations in accordance with the norms of required reserves. The size and structure of the mandatory ... ... Economic dictionary
bank reserves (mandatory)- funds of commercial banks and other credit institutions, which they are obliged to keep in the central bank as security for some of their operations in accordance with the norms of required reserves. The size and structure of the mandatory ... ... Dictionary of economic terms
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All credit institutions operate in conditions of uncertainty. None of them are 100% insured against unplanned financial losses. website
Therefore, all banks must regulate their risks and form mandatory cash reserves, read here why banks are revoked licenses. To provide financial security, banks must create various reserves that can cover possible losses. The amount of reserves, the procedure for using and forming funds from them are established by the Central Bank of Russia (CBR). These funds are used only in case of urgent need, they have the following types. website
Bank reserve fund
This is a certain share of equity, which is formed from deductions from profits every year. They cover losses that arise as a result of the bank's work. Also, the reserve fund of the bank is created to increase the statutory fund. Deductions to this fund are established by shareholders, but they cannot be less than the value of the authorized capital specified by law. All banks can allocate funds to this fund at the end of the year, but only if they have a profit from their activities.
If the activity of the bank brings only losses in reporting year, then the creation of a reserve fund is out of the question. Consequently, the reserve fund is created due to the increase in net assets. Thus, this fund accumulates funds that are received as a result of the bank's activities. By transferring part of the profit to the reserve fund, the bank can use it only to cover possible losses, and not for any other extraneous purposes. website
Reserve requirements
Installed them Central bank Russia (http://www.cbr.ru/) to control money by reducing the accumulation of money by commercial banks. This is a tool that can regulate the overall liquidity of all banks in the country. Required reserves of banks are the funds of commercial credit institutions, which must be kept in the Central Bank of the Russian Federation in the form of a financial guarantee fund.
It ensures the reliable performance of the bank's obligations to customers. Reserve funds are created not in any specific banks, but in all credit institutions without exception. These funds are highly liquid assets, but can be used with certain restrictions. website
For example, if the bank stopped receiving money from depositors, then with the help of required reserves it is possible to finance this process only within the established standard, and nothing else. If the amount of required reserves is increased due to a change in the standard, this will not make an individual bank reliable, since additional funds will be withdrawn from circulation. website
Reserve fund of banks for impaired securities
Once a month, all banks revalue investments in securities at their market value. By their market value is meant the average price of one security in transactions for certain period. In some cases, the market value is understood as the actual purchase price of this security, reduced twice.
Thus, if the market value of a security is lower than its value on the balance sheet, the bank is obliged to create a fund for the depreciation of deposits in securities. The amount of the reserve should not exceed fifty percent of its book value. This reserve is usually formed on the last business day of each month. It is written off at the same time as the disposal of this paper. website
It should be noted that the bank's reserves must be created for each security separately, regardless of whether its value has increased or remained. With the help of revaluation of deposits in securities, you can create a reserve fund for their depreciation. However, this does not change their value balance sheet. The bank's reserves for impaired securities are not reserves, but an adjustment to their value, taking into account the number of securities and their market value. website
Bank reserves for loan losses
This type of reserve is formed due to credit risks in the activities of credit institutions. It avoids changes in profits due to loan losses. This, in turn, affects the amount of capital. This reserve is formed from deductions that relate to the bank's expenses, and for each loan issued separately.
This type the reserve is used only to cover the outstanding loan debt of customers on the principal debt. Due to it, losses on loans that cannot be recovered are written off. Banks struggle with loan debtors in various ways, but if things come to a standstill, and the money on the principal debt cannot be returned, a reserve fund is used. website
Loan debt, which cannot be recovered, will be written off the bank's balance sheet at the expense of this reserve. If it is not, then it will be written off as “losses of the reporting year”. Thus, the bank's taxable base will be reduced. In forming such a fund, banks do not use any valuable resources. website
Other reserves of the bank
In addition to the listed reserves of banks, there are others, which include reserves for balance sheet assets, for futures transactions, for other losses. Under the possible losses of the bank understand the circumstances that imply losses in the future under certain circumstances.
These circumstances include a decrease in the value of the bank's assets, non-fulfillment of obligations by counterparties, an increase in expenses compared to the previous period. There can be many unforeseen situations, but the bank's reserves must be there in order to be able to cover losses if necessary. website Of all the bank reserves considered, only the reserve fund is the most effective. Only with the help of it can a credit institution regulate and cover its expenses. All other funds cannot be called effective, since their increase does not lead to the fact that the bank can withstand various kinds of risks and unforeseen situations. In addition to the material, we note our rating of banks. website
