Understanding Finance from scratch

Chapter 15 Who is in charge of handling our "money" - learn something about financial institutions every day (2)
At the beginning, this banknote could be exchanged for gold and silver at any time.Everyone is very relieved, because banknotes are gold and silver.However, the production of gold and silver on the island is too small. When people's exchange activities become more frequent, the banknotes are not enough, so the exchange can only be suspended.The consequence of suspending the exchange is that people no longer produce what others want, because although others use it, they cannot be exchanged. To use the current words, economic development has slowed down.

Later, a wise man thought of a way to set up a bank. This bank belongs to everyone. The banknotes are issued by the bank, and the printed banknotes are lent to those who want to use the money, and then returned to the bank when the person has money.And so the bank appeared.

Almost everyone of us has to deal with commercial banks. Do you know what the definition of a commercial bank is?What services can it provide us?

Although the East and the West have different references to commercial banks, the concept of commercial banks can be roughly understood as: commercial banks are money management enterprises whose main business is to operate industrial and commercial deposits and loans, and to obtain profits.Please pay attention to a few key points in the definition: first, a commercial bank is an intermediary organization that grants and accepts credit; second, a commercial bank is an enterprise that seeks to obtain profits; third, a commercial bank is the only one that can provide "bank currency" (demand deposits) financial organization.

At present, there are 5 state-owned commercial banks in my country (China, Agriculture, Industry, Construction, Communications), 12 small and medium-sized joint-stock commercial banks (Ping An, CITIC, Huaxia, China Merchants, Everbright, Minsheng, Pudong Development, Bohai, Guangfa, Xingye, Hengfeng, Zheshang), 110 city commercial banks, more than 20 village banks, rural commercial banks and rural banks.These commercial banks cover the whole country and have become an indispensable part of the national economic development.

Let's talk about the services that commercial banks can provide for us.The business of the bank is mainly manifested in three aspects: assets, liabilities, and intermediary business.

[-]. Asset business

This is a business that reflects commercial banks engaging in financial activities and forming capital occupation.It is also the most important and core business in banking.There are:

(1) Cash assets.This is the bank's most liquid asset that can be used for bank payments at any time, and is regarded as the bank's primary reserve.It mainly consists of four parts: cash on hand, central bank deposits, interbank deposits, and cash in collection.

Cash on hand, that is, cash and coins in a vault in banking.It is mainly used for customers to withdraw cash and bank daily expenses.

Central bank deposits, that is, deposit reserves drawn up at a prescribed rate.It is mainly used by the People's Bank of China to control currency, implement national policies, and regulate commercial banks' credit expansion capabilities.This point, you may feel very obvious in the past two years.For example, in 2009, the financial crisis was spreading, foreign trade plummeted, investment was sluggish, and enterprises were short of funds. In order to resist the crisis, the country adopted a loose monetary policy and did not adjust the statutory reserve ratio, that is, low reserve ratio and low Deposit interest rates, increase bank lending, increase market liquidity, promote consumption, and promote the recovery of the national economy; In 2010, in order to curb inflation, the People's Bank of China raised the statutory reserve ratio four times and reduced credit supply.

Interbank deposits, that is, deposit accounts opened in other banks or financial institutions, are mainly used for interbank settlements and payments.

Cash in collection, that is, the bills that the Bank collects from the paying unit or individual in other places through the counterparty bank.Such checks that must be made payable to other payee banks are called cash in collection.

(2) Loan assets.This is the core asset business of the bank and the main way to use funds to obtain profits.Bank loan refers to an economic behavior in which the bank lends funds to those who need them at a certain interest rate and repays them within an agreed time limit.There are many types of bank loans, and the classification standards are also different.Generally speaking, there are mainly the following categories:
According to the length of the loan period, loans can be divided into short-term loans and long-term loans.

According to the purpose of the loan, the loan can be divided into working capital loan, fixed capital loan, technology development loan, personal housing mortgage loan, personal automobile consumption loan, etc.

Loans can be divided into credit loans, guaranteed loans and discounted bills according to whether they have collateral or not.

According to different loan interest rates, loans can be divided into fixed-rate loans, floating-rate loans, and preferential-rate loans.

According to whether the loan is risky or not, the loan can be divided into normal loan, special mention loan, subprime loan, doubtful loan and loss loan, which is the five-level classification of loans commonly used in the world.

(3) Investment business.This refers to the activities of banks to purchase securities (bonds, stocks), the purpose of which is to obtain benefits, diversify risks, and increase liquidity.According to the issuer, the objects of bank investment can be roughly divided into: government securities (treasury bills, medium-term bonds, long-term bonds), government agency securities (such as bonds issued by national professional investment companies, the Ministry of Petroleum, and the Ministry of Railways), local government securities and corporate securities.

(4) Foreign exchange trading.In the operation of various international businesses, banks must involve the receipt, payment, exchange, purchase or sale of more than two currencies.This type of business is not only a necessary business that banks provide to customers, but also a necessary activity for banks to transfer foreign exchange positions, operate foreign short-term or even long-term capital investment, and buy and sell securities.Therefore, it can be said that foreign exchange trading is the basis of all international business operations of banks.

[-]. Debt business

Liability business is the business that forms the main source of funds of commercial banks, and is the premise and condition of bank asset business.More than 90% of the bank's total funding comes from liabilities.Liability business of commercial banks mainly includes capital fund business, deposit business and non-deposit business.

(1) Capital business.This refers to the funds that the bank owns or can permanently dispose of.

(2) Deposit business.This refers to a traditional credit business in which banks accept monetary funds deposited by customers, and customers can withdraw money at any time or according to the agreed time.Taking deposits is an important financing business activity of banks, and it is a kind of liability to depositors, accounting for 70% to 80% of the bank's source of funds, providing a basis for banks to develop asset business.There are many types of bank deposits, which can be divided into different types according to different standards, mainly including:

Demand deposits, also known as checking accounts or transaction accounts, are mainly used for transaction and payment purposes, including checks, cashier's checks, money orders, telephone transfers, etc.

Time deposit refers to the deposit that the customer and the bank have agreed in advance on the deposit period, and pay relatively high interest, which can only be withdrawn upon maturity.

Savings deposits refer to a deposit in which individual residents accumulate monetary income into monetary assets and earn interest.It is mainly divided into current savings, fixed-term savings, fixed-life two-day savings, zero deposit and lump-sum withdrawal savings, education savings, and other savings.

(3) Non-deposit business.Refers to the business in which banks borrow funds from the financial market in various ways to meet liquidity needs.There are mainly the following types:

Borrow from the central bank.The main methods are refinancing and rediscounting.Refinancing is borrowing by banks directly from the central bank to meet their seasonal or temporary funding needs.Rediscounting refers to the transfer of bills that banks apply to the central bank for rediscounting bills that have been discounted but not due when they are short of funds and have difficulties in turnover.

Interbank lending.This refers to the short-term financing between commercial banks and between commercial banks and other financial institutions.In addition to interbank lending, there are remortgage and rediscounting.

repurchase agreement.This refers to an agreement in which a commercial bank sells securities (mainly short-term government bonds) to obtain funds, and at the same time promises to repurchase the sold securities at an agreed price in a certain period of time in the future.Banks use repurchase agreements to finance funds, which is actually a loan behavior secured by securities, which is a new form of liability.

Issue financial bonds.This refers to a financing method in which commercial banks publicly issue financial bonds to the public in order to raise medium and long-term funds.Holders of financial bonds have the right to get back the principal and interest at maturity.

Borrow from international markets.That is to raise funds from the international financial market to make up for the lack of funds.

[-]. Intermediary business

Intermediary business means that commercial banks, on the basis of asset business and liability business, take advantage of advantages in technology, information, institutional network, capital and reputation, do not use or use less bank assets, and replace them with the identity of middlemen and agents. Customers handle collection and payment, consulting, agency, guarantee, leasing and other entrusted matters, provide various financial services and charge certain fees for business activities.In the two traditional businesses of asset business and liability business, banks participate as a party in credit activities; however, intermediary business is different. Banks no longer directly act as a party in credit activities, but only play the role of intermediary or agency, and usually implement paid services. .According to the function and nature, the intermediary business can be divided into the following nine categories:

(1) Intermediary business of payment and settlement refers to the fee-paying business related to currency payment and fund transfer that commercial banks handle for customers due to creditor-debt relationships, such as check settlement, import bills, acceptance bills, etc.

(2) Bank card business is a credit payment tool issued by authorized financial institutions to the society, which has all or part of the functions of consumer credit, transfer settlement, deposit and withdrawal of cash, etc.

(3) Agency intermediary business refers to the business that commercial banks accept entrustment from customers, handle economic affairs designated by customers, provide financial services and charge certain fees, including agency policy banking business, agency collection and payment business, agency securities business, Agent insurance business, agency bank card acquiring business, etc.

(4) Guarantee intermediary business refers to the business in which commercial banks provide guarantees for customers' debt repayment ability and assume the risk of customer default.Including bank acceptances, standby letters of credit, various letters of guarantee, etc.

(5) Commitment-type intermediary business refers to the business that commercial banks provide customers with agreed credit on a certain date in the future according to the conditions agreed in advance, including loan commitments, overdraft lines and other revocable commitments and standby credit lines, bill issuance facilities, etc. There are two types of revocation of promises.

(6) Trading intermediary business refers to capital trading activities conducted by commercial banks using various financial instruments to meet the needs of customers for value preservation or risk management, including various financial derivative businesses such as futures and options.

(7) Fund custody business means that commercial banks with custody qualifications accept the entrustment of fund management companies to safely keep all the assets of the funds under custody, and handle fund liquidation, fund transfer, accounting, fund valuation, etc. for the funds under custody. Supervise the manager's investment operation.

(8) Consulting business is a commercial bank that relies on its own advantages in information and talents to collect and sort out relevant information, and combines the characteristics of the bank and customer capital movement to form a systematic plan and provide it to customers to meet their business management requirements. Required service activities mainly include financial advisory and cash management services, etc.

(9) Other types of intermediary business, including safe deposit box business and other businesses that cannot be classified into the above eight categories.

Policy Bank: Looking forward to a gorgeous turnaround

After the Second World War, the people's livelihood in Germany was in dire straits, and the people urgently needed to rebuild their homes.In order to raise huge reconstruction funds, in 1948, the German government invested 10 billion marks to form the German Reconstruction and Development Bank (KFW).Immediately after the establishment of the KfW Bank, huge sums of money were raised through the issuance of medium and long-term bonds, providing a large amount of funds for the German people to rebuild their homes on the ruins.The KfW played a major role in post-war Germany's revival, and it is as famous as the beautiful Rhine.

So, what is the difference between policy banks and commercial banks?What are the functions of policy banks?Where will policy banks go?

Speaking of policy banks, many people may feel unfamiliar.Policy banks refer to those established by the government, shareholding or guarantee, not for profit, specifically to implement and cooperate with the government's social and economic policies or intentions, and directly or indirectly engage in policy financing activities in specific business areas. It is a financial institution that acts as a tool for the government to develop the economy, promote social progress, and conduct macroeconomic management.my country's three major policy banks are China Export-Import Bank, China Development Bank, and China Agricultural Development Bank.

Many countries have policy banks, and the types are relatively comprehensive, forming a relatively complete policy banking system, such as the famous "two banks and nine treasury" system in Japan, including the Export-Import Bank of Japan, the Development Bank of Japan, and the National Bank of Japan. Public Treasury, Housing Finance Corporation, Agriculture, Forestry and Fishery Finance Corporation, Small and Medium Enterprise Finance Corporation, Hokkaido Tohoku Development Corporation, Public Enterprise Finance Corporation, Environmental Sanitation Finance Corporation, Okinawa Promotion and Development Finance Corporation, Small and Medium Enterprise Credit Insurance Corporation South Korea has policy banks such as the Korean Development Bank, the Export-Import Bank of Korea, the Korean Small and Medium Enterprise Bank, and the Korean Housing Bank; France has the French Credit Agricole Bank, the French Foreign Trade Bank, the French Land Credit Bank, the French National Credit Bank, Small and Medium Enterprise Equipment Credit Bank and other policy banks; the United States has policy banks such as the Export-Import Bank of the United States and the Federal Housing Credit Banking System.

Commercial banks generally have an interest preference of disliking the poor and loving the rich. Bankers are the best at adding icing on the cake and don't like to give charcoal in a timely manner. This leads to the lack of development opportunities for disadvantaged groups.In economic development, there are often areas where commercial banks are unwilling to finance from the perspective of profitability, or areas where their financial strength is difficult to reach.These fields usually include those projects that are of great significance to national economic development and social stability, with large investment scale, long cycle, slow economic benefits, and long capital recovery time, such as agricultural development projects and important infrastructure construction projects.In order to support these projects, the state often implements various incentive measures. The method that countries usually adopt is to set up policy banks to finance these projects.

The establishment of policy banks has played a positive role in China's economic development for more than ten years. The three policy banks are implementing national industrial policies and promoting economic restructuring, especially supporting capital investment in bottleneck industries, export earnings, and export trade development of enterprises. played a big role.The Agricultural Development Bank also plays a very important role in the purchase of grain, cotton and oil. Some people say that the biggest role of the Agricultural Development Bank is to avoid IOUs.

Under the conditions of a modern market economy, commercial finance and policy finance complement each other and cooperate with each other to form a complete, balanced, stable, efficient and unified financial system of a country or region.Commercial finance plays an extremely important role in promoting economic development and social progress, and policy finance also plays an irreplaceable role in optimizing resource allocation, balancing economic growth, and building a harmonious society.

Compared with commercial banks and other non-bank financial institutions, policy banks also have common features, such as strict review of loans, repayment of principal and interest, and turnover of loans.However, as a policy financial institution, it also has its own characteristics:
The source of capital is different.Policy banks are mostly funded and established by the government, and their business is led by corresponding government departments.Most commercial banks adopt the form of joint-stock system, with independent business operations and independent accounting.

Funding sources vary.Policy banks generally do not accept deposits and do not borrow from the private sector.Commercial banks use deposits as their main source of funds.

The purpose of business is different.Policy banks are specially established to support the development of certain sectors, not for profit, and are closely related to the corresponding industrial sectors.Commercial banks, on the other hand, aim at maximizing profits and have a wide range of businesses.

The three major policy banks in my country mentioned above were established in 1994. These three banks have their own priorities and develop together.

The main purpose of establishing the China Development Bank is: on the one hand, to provide financing for key national constructions, to ensure the smooth progress of key constructions related to the overall situation of the national economy and social development; The system gives development banks certain investment and loan decision-making power, and requires them to bear corresponding responsibilities and risks, so as to prevent blind investment and repeated construction.

With the expansion of my country's foreign economic and trade, the method of using subsidies to impose special protection and promote exports has become outdated.In order to expand the export of mechanical and electrical products, especially large-scale complete sets of equipment and high-tech and high value-added products, by using common practices such as export credits and guarantees in accordance with international practices, reasonably promote the development of foreign trade, and create a fair, transparent and stable foreign trade environment , my country established the Export-Import Bank of China.

Agriculture is the foundation of the national economy.my country's agricultural foundation is weak, and regional differences are large.The development of agriculture, especially the development of agriculture in backward areas, the production, purchase, storage and sale of major agricultural products such as grain, cotton and oil, requires the support of the state to a considerable extent.In order to concentrate financial resources to meet the reasonable policy funding needs of agricultural and rural economic development, and promote the closed operation of major agricultural product purchase funds, the Agricultural Development Bank of China was established.

(End of this chapter)