One of the most important indicators of the state of the bankis the liquidity of its resources. A high level of this indicator means that this financial institution is able to pay off its obligations both in the current and the future period. When liquidity, and hence solvency, the bank falls, then refinancing is necessary. This means that the Central Bank of the state should allocate additional funds in conjunction with interested investors.
Fundamentals of financial system stability
The task of any Central Bank is on timenote the gap in time in the liquidity of the bank, analyze it and, if necessary, find means to liquidate it. Refinancing is a process that allows:
- Ensure the continuity of settlements in the national system of the economy by guaranteeing the liquidity of each individual bank.
- Monitor the situation on the monetary market by setting interest rates.
Nevertheless, it is important to understand that refinancing- this is not a permanent source of additional funds for financial institutions. The central bank is not interested in supporting a troubled financial institution on a regular basis. Therefore, any bank should strive to attract additional funds from new customers and shareholders.
Basic principles of competent refinancing
To ensure the stability of the monetarysystem of the state The central bank, when providing additional funds to other financial institutions should be guided by the following provisions:
- Preliminary determination of limits and volumes of crediting.
- Refinancing of banks should correspond to the tasks of the approved monetary policy.
- A financial institution in need must have no debt to the Central Bank and be able to repay a loan in the long term.
- Availability of reliable provision of additional funds.
- The correct size of the loan, corresponding to the value of the mortgage.
- The refinancing rate can not be lower than the discount rate.
Types of loans
Refinancing is the last chance formost banks. The Central Bank is treated when all other ways to attract free funds have already been exhausted, and the debt to customers still remains. There are two main types of loans: regulatory and specific. The former are constantly operating financial instruments and are used to monitor the money market conditions. Specific loans are used to stabilize situations with a lack of liquidity in specific banks. To regulate the market, the Central Bank can also use repo and swap transactions.
Mechanism of functioning
Refinancing is a process that looks like this:
- The bank has problems with solvency.
- The Central Bank analyzes the situation and makes a decision to grant a loan, for example, $ 10 million for one year.
- A commercial bank lends money to its customers at a higher interest rate than the refinancing rate.
- After the expiry of the term, he returns 10 million with a CBA premium.
- The money received as a result of this operation is redistributed and increases the solvency of the bank.
The Central Bank does not work directly with the population, since in this case it would be necessary to control millions of small borrowers. Therefore, commercial banks act as intermediaries between him and ordinary people.
Refinancing rate
According to the Federal Law "On the central bankRF ", the Central Bank can provide additional funds for a certain period on a return basis to credit institutions to solve their problems with liquidity. The refinancing rate is an instrument through which interest on deposits and loans is controlled. Its reduction is beneficial to borrowers, while investors lose some of their income. Refinancing of the Central Bank is carried out according to the established or chosen on the basis of market mechanisms rate.
Interest adjustment
Prior to 2010, the maximum amount that was recognizedexpense, was equal to the following value: refinancing rate * 1.1. Now the second multiplier was increased to 1.8 for ruble borrowings. When changing one of the indicators during the validity of the loan agreement, a double settlement must be made. As for contracts using foreign exchange, here the refinancing rate is not used. The maximum level, which can be considered a cost, is 15%.
Areas of application and impact
Refinancing banks at a certain rate in the Russian Federation has an impact not only on the financial and credit institutions themselves, but also on the common citizen. In particular, we can distinguish the following cases:
- Taxation of interest income on deposits (according to the RF Tax Code, a 35% rate is established if the amount is exceeded, which is calculated on the basis of the refinancing rate).
- Calculation of payments for the delay of money due to the employee (including vacation).
- Calculation of penalties on tax or collection (its percentage is one three hundredth of the established refinancing rate).
The process of lending to the Central Bank of commercial banksis an important regulator of the state financial system. The development of the economy largely depends on it, because the population tends to trust their resources to banks only if they are sustainable.
