Use of the banks capital
Posted on Nov 22, 2000 08:15:27 AM
In accordance with the Regulations of the Central Bank of Russian Federation № 159-P “On the method of calculating the proper ¬ funds (capital) of credit institutions’ own funds in the included primary and secondary capital. The sources included in the capital include:
1) The authorized capital of joint-stock commercial bank in terms of ordinary shares;
2) the charter capital of the bank, created in the form of a limited liability company;
3) the bank’s funds generated from profits of previous years and current year;
4) the share premium of the bank, was created as a joint stock company;
5) the share premium of the bank, created in the form of a limited liability ¬ sion;
6) profit last year and this year, reduced by the amount of funds allocated for the relevant period;
7) of the impairment of investments in securities, shares and interests.
The composition of capital include funds whose use does not diminish the value of the bank property.
Sources of additional capital of the bank are:
1) increase in property value due to revaluation;
2) part of the reserve for loan losses;
3) Funds generated for the current year, current year;
4) subordinated loans;
5) preferred stock.
Commercial banks in the ordinary course of business and the accumulation of profit set up various funds: a reserve fund, special purpose funds and savings, etc.
Reserve fund is intended to cover damages and compensation for losses resulting from the ongoing activities of the bank and secures a stable operation of the bank.
Special purpose fund and accumulation fund designed to provide industrial and social development of the bank. They are used to purchase new equipment, go on social development staff, material encouragement of workers, benefits, etc.
A special part of the equity represent insurance reserves, the bank formed to support sustainable funktsionioovaniya during the transaction. This is a provision for impairment of investment securities and the reserve for possible loan losses. Formation of such reserves shall be binding upon and controlled by the Central Bank of Russian Federation.
In the role of second-tier capital (supplementary capital) might act as Subordinate loan. He provided the bank for at least 5 years and can be claimed only creditor after the expiration of the contract. This credit can not be used to repay the losses of the bank.
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