The bank's reserve fund refers to the bank's own capital

Bank reserve requirements or reserve requirements- represent a tool for regulating the overall liquidity of the banking system, used by the Bank of Russia to control funds by reducing monetary accumulation by commercial banks. Such a mechanism is established in order to limit the credit capabilities of financial organizations and maintain the money supply in circulation at a certain level.

A bank's required reserves are, in essence, the funds of commercial banks and other credit institutions, which they are required to store with the Central Bank as a guarantee financial fund that ensures the reliable fulfillment of their obligations to clients. In principle, the task of creating required reserves lies outside the interests of an individual bank, in essence, is an instrument for implementing the state’s monetary policy.

Mandatory reserves, being highly liquid assets, however, cannot be fully used if the bank encounters unfavorable circumstances. For example, if a bank begins to outflow depositors’ funds, then required reserves can be used to finance this process only within the established norm. And even an increase in the amount of required reserves due to changes in the standard does not increase the reliability of an individual bank, since in this case additional funds are withdrawn from circulation.

Bank reserve fund

Bank reserve fund- part of the equity capital formed through annual deductions from profits. The reserve fund serves to cover the bank's losses arising as a result of its activities, and is also created to increase the authorized capital. The standard for contributions to the reserve fund is established by the general meeting of 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. At the end of the year, a credit institution has the opportunity to make contributions to the reserve fund only if there is profit. Thus, the bank's reserve fund is created due to the increase in net assets.

Thus, the reserve fund accumulates assets received by the bank as a result of its activities. By making transfers from profits to the 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 loan losses

Provision for possible loan losses is a special bank reserve, the formation of which is determined by credit risks in the activities of financial organizations. This reserve allows you to avoid fluctuations in banks' profits due to the write-off of loan losses, thereby affecting the amount of capital.

This reserve formed from deductions attributed to bank expenses, and separately for each loan issued. The bank's reserve for possible loan losses is used only to cover the principal amount of loans outstanding by clients. At the expense of the specified bank reserve, losses on loans that cannot be collected are written off.

In this case, loan debt, bad and (or) recognized as unrealistic for collection, is written off from the credit organization’s balance sheet at the expense of the reserve for possible loan losses, and if there is insufficient reserve, it is written off as a loss for the reporting year, thereby reducing the bank’s tax base. True, when forming such a bank reserve, no valuable resources are used.

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Required reserves required to open a commercial bank, which can cover the financial institution's liabilities, doubtful loans, and bad debts.

The creation of such reserves is regulated by the Central Bank of the Russian Federation. The main liabilities, which account for the majority of reserves, are deposits of individuals, payments for which are guaranteed by the Deposit Insurance Agency (DIA).

Required reserves of a commercial bank

This system is necessary for a commercial bank to fulfill its obligations, as well as to regulate the circulation of money supply.

The mandatory reservation system solves the following problems:

• Providing the opportunity for commercial banks to use raised funds for lending.
• Support by the Central Bank of the Russian Federation for commercial banks, if necessary. Reserve funds can be used in the form of loans to a financial institution to strengthen solvency when it is necessary to make urgent payments on deposits.

When a deposit account is opened in a bank by an individual or legal entity, part of this amount is transferred to a special account with the Central Bank and stored there until the depositor withdraws money from the bank.

Some types of obligations of banking institutions are exempt from reservation, these include:

• deposits of legal entities that have invested funds for a period of 36 months;
• bonds with a maturity period of more than 36 months;
• loan obligations expressed in non-monetary form (securities, precious metals);
• obligations to other financial and credit institutions;

Reserve fund

Other reserves

Commercial banks can also form other reserve funds: a reserve to cover the cost of securities that have fallen in price, a reserve to reduce the value of balance sheet assets.

No institution issuing loans can fully insure itself against financial losses. In this regard, while such organizations operate, financial institutions must regulate banking risks. To do this, they assign a serious role to measures to reduce the likelihood of losses. This is precisely why the bank's required reserves were created.

Ensuring reliability

In order for a bank to be considered financially reliable for its clients, by law it must create reserves of various types that can cover any losses associated with lending to citizens. In most cases, the Bank of Russia is responsible for the creation and determination of specific amounts, and this issue is also regulated by legislative acts. This is what forms the required reserves of banks. The Central Bank of the Russian Federation is responsible for determining the minimum reserve of any organization. Contributions to these reserves are made before the amount of taxes on the organization's profits is calculated, and this is regulated by federal laws.

Types of bank reserves

The amount reserved to cover losses has a specific purpose: it is used in cases of urgent need. However, provisions directly relate to expected expenses and losses. They are usually divided into different categories. At the same time, the norm of required reserves of the bank is regulated directly by state legislation.

Required reserves

The concept of reserve requirements refers to an economic instrument created to regulate the liquidity of the country's banking system. The Bank of Russia uses it to control financial resources, reducing the cash savings of commercial organizations. Thanks to this mechanism, it is possible to limit the credit capabilities of these companies and regulate the money that is in circulation among the population.

Mandatory reserves of central banks are the financial assets of commercial banks and other companies in this field collected in one place, which must be maintained in the country's Central Bank. This is the so-called guarantee fund, with the help of which the state ensures the reliability of transactions between organizations and their clients. At the same time, not a single bank is interested in creating such an instrument - it is completely neutral and performs the function of implementing the country’s financial and credit policy.

Such reserves are considered to be assets with high liquidity, but the bank does not have the right to use them in full if it encounters operational difficulties or other circumstances that adversely affect its functioning. Let’s say that if a financial organization experiences an outflow of customer investments, then the organization can use bank reserves to a limited extent. That is, only that part of them that is permissible in accordance with regulations. Increasing the required reserves for a particular organization will not give it the opportunity to become more reliable. This is due to the fact that changes in regulations will entail the withdrawal of an additional amount of money from circulation.

Bank reserve fund

This concept is usually understood as part of the company’s own funds, which is formed through the annual deduction of financial resources from its profits. It is created in order, if necessary, to cover the organization’s losses that arise in connection with its activities.

The second purpose of creating a reserve fund is to increase the authorized capital. To determine the standard of deductions, a general meeting of shareholders of the organization meets, but they cannot reduce a certain amount of the authorized capital.

When calculating the company's capital, this fund is usually taken into account. That is, the required reserve ratio of the central bank must be taken into account for this type. The only time a lending bank can make a payment into this fund is when it has a profit at the end of the business year.

The creation of a reserve fund is entirely determined by the increase in net assets. Thus, assets received by the organization as a result of its activities may fall there. At the time of deduction, a financial institution can use part of its assets exclusively for certain purposes, and the main one is to cover the organization’s losses.

Provisions for possible loan losses

This concept means a special reserve of the central bank, which is formed in connection with the occurrence of credit risks, and they necessarily arise during the organization’s activities in this area. Thanks to this reserve, the company prevents fluctuations in the amount of profit of commercial organizations. This result is achieved by writing off money to cover loan losses. In this way, the amount of the company's final capital is regulated.

The formation of this reserve occurs due to deductions that relate to the expenses of organizations engaged in banking activities. In this case, each loan issued is taken into account separately. Reserves of commercial banks, aimed at probable losses from issuing a loan, can only be used to cover the client’s principal debt, without taking into account interest. Using this reserve, you can write off losses on those loans for which clients do not make mandatory payments.

It is worth noting that such a debt - if it is recognized as hopeless or unrealistic to collect from the client - must be written off from the bank’s balance sheet at the expense of this very reserve. And if it is not enough to cover the debt, then this amount goes to the number of losses for the reporting year. This, in turn, leads to a reduction in taxation of the base of a commercial credit organization. But it is worth considering that by forming such a reserve, the bank cannot use valuable resources.

Bank reserves for depreciation of securities

At the end of each reporting period, that is, on the last day of the working month, securities must be revalued. That is, the market value that the bank invested in these securities is estimated. This case implies that the price of one security is taken into account as the market value, taking into account transactions that were carried out during the last day of trading on the stock exchange or through a trade organizer. These are exceptional cases when the actual cost of the paper, divided in two, is taken as the market price.

Special cases

If such a situation occurs, and the security at the time of the last working day of the reporting month became lower than its book price, then the organization must create a certain reserve. It is intended to cover losses that arise in connection with the depreciation of a security. In this case, the reserve norms of a commercial bank must be less than half the value of each individual security.

The formation of this reserve should occur on the last day of the month when this security was purchased by a commercial credit organization. As soon as it is disposed of, a certain amount is debited from the bank account to the reserve. It doesn’t matter how much the value and safety of all securities in an organization changes, a reserve must be made for each of them separately.

When carrying out such revaluations, a reserve is created that can cover losses in the event of depreciation of these assets. In this regard, bank reserves, intended to reduce the risk of depreciation of securities, are more of an adjustment to the value of the asset so that the company's balance sheet can be correctly compiled. Each commercial organization in this area is obliged to monthly adjust previously created similar reserves, taking into account the number of securities and their market price.

Other types of bank reserves

The above types of reserves are the most basic and mandatory, but these are not all the types necessary to maintain the liquidity of a banking organization. Also, in order to avoid losses, the organization is obliged to create the following bank reserves:

• reserves for balance sheet assets, and absolutely all types of them are taken into account, if there is at least a small probability of a risk of loss of capital;
• reserves for instruments that are reflected in the off-balance sheet accounts of the organization’s accounting department;
• reserves relating to all forward transactions of a banking or commercial organization;
• additional reserve that can cover other losses not previously taken into account.

Possible losses

It is important to realize that in the event of possible losses of a banking organization, a financial institution allows the formation of reserves only for hypothetical losses that arise under certain circumstances. The following points can be taken into account here:

• if the value of a credit, banking, commercial organization may decrease;
• if the volume of expenses or obligations of the organization increases in comparison with those taken into account in the forecasts and accounting records;
• if the bank's counterparties do not fulfill the obligations assigned to them by the credit institution, the terms of the transactions concluded by the bank will not be met, etc.

Conclusion

Bank reserves are divided into several types, and each of them plays its role in the activities of a financial organization. In general, it is worth considering that of all the options considered, the most effective is the reserve fund. The fact is that it is he who can influence the organization’s ability to cover its expenses. The remaining types of reserves do not affect the level of the banking organization’s ability to withstand problematic periods in the implementation of its activities. But they are important for maintaining the solvency and liquidity of the bank.

Any financial activity is accompanied by the possibility of loss of funds, and 100% insurance against such risks does not exist. Taking this fact into account, each banking organization must have a certain reserve fund, and this aspect is reflected in the legislation of the Russian Federation. What should be the amount of reserve for a Russian commercial bank? How is the reserve value calculated? Let's try to figure out these and other questions.

What do bank reserves mean?

A reserve, in the generally accepted sense, is a reserve of financial resources, materials, products, and so on, for a specific case. Banks also have their own financial reserves.

What do they provide? Reliability of a specific financial structure. Moreover, not one reserve is created, but several, because losses can also be of various kinds . In what order to form this or that financial reserve and how to use it is prescribed in the legislative framework of the Russian Federation. The minimum size of each reserve is determined by the Central Bank of Russia.

Main types of reserves of commercial banks

All reserves have one purpose - to cover the losses of a banking organization. They are used when urgent need arises. For each type of financial loss there is a separate fund.

In commercial credit structures, the main types of “reserves” are:

• Mandatory reserve funds

They are an instrument that regulates the liquidity of the entire credit structure of the country. This instrument is used by the Bank of Russia. This is a kind of control over finances concentrated in commercial banks. What role does he play? It limits the lending capacity of banks, and in addition, the money supply in circulation is maintained at a certain level.

Such reserves are stored at the Central Bank and serve as a guarantee that provides peace of mind to bank clients. They can be sure that the banking organization will fulfill all obligations in any case.

In fact, a mandatory fund does not affect the interests of a specific banking structure. The state needs such a mechanism to carry out financial and credit activities with highly liquid assets. For example, in a bank there is an outflow of money, then reserve finances belonging to the mandatory type are used.

• Bank reserve

This is the equity capital of a particular banking organization, or more precisely, part of it, formed through annual deductions of a certain percentage of the profit received. If an organization has not made a profit for the year, then it simply has nothing to replenish the fund from. The question arises about the functional purpose of such a reserve fund. It consists of covering losses arising in the course of the bank’s activities, as well as to increase the authorized capital. The rate of contributions is set by the shareholders.

• Bank reserve providing for the possibility of non-repayment of loans

There is always a risk of not getting your funds back in full. By forming this reserve, the organization eliminates possible fluctuations in the figures reflecting the amount of profit - losses from non-repaid loans are written off, which affects the amount of capital.

How are required reserves or requirements of commercial banks formed?

Bank reserves from the mandatory category are stored in the Central Bank. These are either securities that ensure the fulfillment of banking obligations to depositors in the form of return of deposits or settlements with other banking structures. Required reserves have norms expressed as a percentage of the bank's various assets and liabilities.

What can affect the norm:

• Period of activity – how long the bank has been operating.
• Amount of asset or liability banking organization.
• Size and type of attracted deposits.
• Features of the region where banking activities are carried out.

Mandatory reserves are formed through money transfers in the national currency of the Russian Federation . The bank opens a correspondent account with the Central Bank of the Russian Federation and transfers funds to it monthly for the reserve fund.

Reserve requirements are met by the bank from the moment it receives a license to conduct banking activities. Moreover, compliance with the requirements is a necessary condition for the credit institution to carry out any operations.

Formation of a reserve fund of a commercial bank - calculation and norm

If there is a possibility of losses, then you need to assess the level of risk. This requires professional judgment and a specific risk classification.

It has five categories of quality of the counterparty’s financial condition:

1. If there is no real or potential threat failure to fulfill obligations by the counterparty, the calculated reserve will be 0% (the calculated base of the element is taken as the base).
2. If there is a threat of moderate-potential losses – 1-20%.
3. If the potential threat of loss has serious justification or in reality there is a moderate argument for losses (the counterparty’s financial situation has worsened) – 21-50%.
4. Simultaneous presence of both potential and moderately real risks – 51-100%.
5. There are all the facts indicating a loss in value of a particular element , that is, the counterparty will not fulfill its obligations under the contract - 100%.

At the same time, the created reserve, or rather its total indicator, in fact must be in accordance with the indicator of expected losses.

Reserves of commercial banks for possible loan losses

The formation of the fund involves deductions, which are classified as bank expenses. This method is applied to each loan issued. The reserve is used only in one case to cover the client’s main credit debt . Losses can be written off only if there is no possibility of collecting the loan.

Debt under a loan (loan) recognized as bad is subject to write-off from the bank’s balance sheet. If the reserve funds in this fund are insufficient, the amount is recorded as the bank's losses for the reporting year. Thus, the tax base is reduced. Valuable bank resources do not take part in the formation of this reserve.

Other reserves of commercial banks

Financial and credit organizations own securities. This financial instrument is also subject to depreciation. That is why they are revalued monthly - the value of each security on the market is checked. In other words, the average cost of each type of securities on the stock exchange for the reporting month is determined.

If the price on the market is less than that indicated on the balance sheet, the credit institution or bank must create a reserve providing for the depreciation of such investments. The amount of the reserve is equal to the amount by which the value of the security has decreased in relation to the price reflected in the balance sheet, but not higher than 50% (the figure indicated in the balance sheet is taken as a basis).

To ensure its activities, it must have a certain amount of cash and tangible assets, which constitute its resources. From the point of view of origin, these resources consist of the bank’s own capital and borrowed funds temporarily attracted by it from outside, borrowed from other persons. It follows from this, what are the resources of the bike represent a set of own, attracted and borrowed funds available to the bank and used by it to conduct active operations.

The bank can place its funds and conduct active operations that generate income only within the limits of its available resources. Banking resources are formed and replenished through passive operations, which play a primary and determining role in relation to active operations, logically and actually precede them and determine the volume and scale of profitable operations.

There are four forms of passive operations of commercial banks:

• primary issue of securities;
• deductions from bank profits for the formation or increase of funds;
• loans and borrowings received from other legal entities;

With the help of the first two forms of passive operations, the first large group of credit resources is created - own resources. The next two forms of passive operations create the second large group of resources - borrowed and attracted resources, i.e. obligations. Thus, the structure of banking resources can be presented as follows:

Own funds

The theory of world banking distinguishes between the concepts of equity and bank capital. The first concept is the most general; the second refers to specially created funds and reserves intended to ensure the economic stability of the bank. However, in Russian practice, the concepts of “own funds” and “capital” are identical.

Capital is the monetary expression of all actual property owned by the bank. In accordance with the Federal Law “On the Central Bank of the Russian Federation” equity capital"is set as the amount of the authorized capital, funds of the credit organization and retained earnings».

The value of the bank's own funds is primarily in maintaining sustainability. At the initial stage of creating a bank, it is the own funds that cover the primary expenses (land, buildings, equipment, wages), without which the bank cannot begin its activities, and the necessary reserves are created. Own resources are also the main source of investment in long-term assets. Banks' own funds include:

• authorized capital;
• reserve fund;
• special fund;
• insurance reserves;
• additional capital;
• profit undistributed during the year.

Authorized capital commercial bank is the monetary expression of the minimum required amount of property that the bank must possess as a legal entity and as an economic entity, i.e. this is the amount of property, only with which a newly created bank can be generally registered as a legal entity and receive the first, simplest banking license and with which the bank is ultimately responsible to its creditors (i.e., if to fulfill its obligations, to pay the bank will have no other means of debt).

The grouping of operating credit institutions by the size of their registered authorized capital over the last three years is characterized by the following data (Table 13.1).

Table 13.1. Authorized capital of credit institutions

The bank's authorized capital - the basis of its resources - consists of contributions from legal entities and individuals - participants (shareholders or shareholders) of the bank. The bank's authorized capital (both directly and as part of its own capital) performs a number of very important functions:

• at the initial stage of the bank’s work, it acts as the starting funds necessary for priority expenses;
• During a period of growth, the bank needs additional capital to create new capacities, and for this purpose banks often resort, in particular, to attracting new participants - shareholders or shareholders, i.e. to increase its authorized capital;
• capital is a regulator of the bank’s activities, including a limiter on the unreasonably rapid growth of its operations and corresponding risks. Supervisory authorities, by putting forward certain requirements for banks in terms of capital, thereby set standards of economic behavior designed to protect banks from financial instability and excessive risks;
• the presence of solid capital creates and strengthens customer confidence in the bank. However, this function cannot be perceived straightforwardly;
• capital plays the role of a shock absorber, absorbing the damage from current losses, which allows the bank to continue operations even in the event of relatively large unexpected losses or extraordinary expenses. Although the bank must have reserve funds to finance such costs, under unfavorable circumstances (for example, massive non-payments by customers), losses may increase so much that part of the authorized capital must be used to pay off losses. It is this that serves as a kind of last buffer, absorbing current losses until the bank’s management resolves the urgent problems.

Reserve fund a commercial bank is intended to compensate for losses on active operations and, in the event of insufficient profits, serves as a source of payment of interest on bank bonds and dividends on preferred shares. A reserve fund is formed through annual deductions from profits. The minimum size of the fund from the level of the authorized capital is established by the Central Bank of the Russian Federation. At the same time, a commercial bank independently determines the level of the maximum size of the reserve fund, which is fixed in the bank’s charter. This amount can range from 25 to 100% of the authorized capital. When the established level is reached, the formed reserve fund is transferred to the authorized capital (capitalized), and its accrual begins anew.

Along with the reserve fund, a commercial bank creates other funds(for the industrial and social development of the bank itself): special purpose fund, accumulation fund, etc. These funds are similar to reserve funds, as a rule, they are formed from the bank’s profits. The procedure for the formation of funds and their use are determined by the credit organization in the regulations on funds, as well as by regulatory documents of the Central Bank of the Russian Federation.

Additional capital The jar includes the following three components:

• increase in property value during revaluation. The revaluation procedure is determined by separate regulatory documents of the Central Bank of the Russian Federation published on this issue;
• share premium (only for shareholders of credit institutions), which is income received during the period of issue when shares are sold at a price exceeding the par value of the shares, as the difference between the cost (price) of the placement and their par value;
• property received free of charge from organizations and individuals.

Insurance reserves are a special component of the bank's capital. Insurance reserves are formed when specific active operations are performed. These primarily include reserves created for possible losses on loans and for the accounting of bills of exchange, reserves for possible depreciation of securities acquired by the bank, as well as a reserve for possible losses on other assets and settlements with debtors. The purpose of these reserves is to offset the negative consequences of an actual decline in the market value of various assets. Reserves are formed at the expense of bank profits in a mandatory manner prescribed by the Central Bank of the Russian Federation.

retained earnings also refers to the bank’s own funds, since in a market economy the principles of operation of commercial banks presuppose independent management of the profit remaining after paying taxes, dividends and contributions to reserve capital.

Total bank capital is adjusted by the amount obtained as a result of the revaluation of funds in foreign currency, securities traded on the organized securities market (OSM), precious metals, as well as by the amount of accumulated coupon income received (paid).

By controlling the activities of commercial banks, the Central Bank of the Russian Federation establishes capital adequacy standards for commercial banks. This indicator is determined by the permissible size of the bank's authorized capital and the maximum ratio of its total capital and the amount of assets, taking into account the risk assessment.

Along with the absolute value of the size of bank capital (as well as authorized capital), the Central Bank of the Russian Federation introduces relative standards, in accordance with which a relationship is established between the size of own funds and the volumes of various types of banking operations. These ratios are also defined in Instruction of the Central Bank of the Russian Federation No. 1.

The bank's own funds serve as a source for the development of its material base; they are used to purchase buildings, necessary machinery, equipment, computer equipment, etc.

In the structure of the bank's liabilities, the share of equity capital is insignificant. However, it must be sufficient to fulfill the obligations assumed by the bank, protect the interests of depositors and other creditors, and prevent bank bankruptcy.

Bank's own capital and its structure

The bank's own capital is a combination of fully paid elements of various purposes that ensure economic activity, stability and sustainable operation of the bank. A prerequisite for inclusion of certain funds in the equity capital is their ability to act as an insurance fund to cover unforeseen losses that arise in the course of the bank’s activities, thereby allowing the bank to continue current operations if they occur. However, not all elements of equity capital have such protective properties to the same extent. Many of them have their own unique characteristics that affect the ability of the element to recover extraordinary unforeseen expenses. This circumstance necessitated the allocation of two levels in the structure of the bank’s equity capital:

• fixed (basic) capital, representing first-tier capital
• additional capital, or second-tier capital.

IN composition of fixed capital, refer to funds that are of the most permanent nature, which a commercial bank can, under any circumstances, freely use to cover unexpected losses. These elements are reflected in the reports published by the bank, form the basis on which many assessments of the quality of the bank's work are based, and, finally, affect its profitability and degree of competitiveness.

IN composition of additional capital with certain restrictions, include funds that are less permanent in nature and can only under certain circumstances be directed to the above purposes. The cost of such funds may change over time.

The sources of the bank's fixed capital include:

• the authorized capital of the bank in the organizational and legal form of a joint stock company, formed as a result of the issue and placement of ordinary shares, as well as preferred shares that are not classified as cumulative;
• the authorized capital of the bank in the organizational and legal form of a limited liability company, formed by payment of shares by the founders;
• share premium of banks;
• bank funds (reserve and other funds) formed from the profits of previous years. remaining at the disposal of banks and confirmed by an audit organization;
• profit of the current year and previous years in the part confirmed by the auditor’s report.

Sources of additional capital are:

• increase in property value due to revaluation;
• funds formed from deductions from the profits of the current and previous year before confirmation by the audit organization;
• current year profit not confirmed by an audit organization;
• profit of previous years before audit confirmation until July 1 of the year following the reporting one (in the absence of such confirmation, profit after this date is not included in the calculation of own capital);
• subordinated loan;
• part of the authorized capital formed by capitalizing the increase in the value of property during revaluation.

Functions of bank equity

The bank's own capital is a special form of banking resources. It, unlike other sources, is of a permanent irrevocable nature, has a clearly defined legal basis and functional certainty, and is a prerequisite for the formation and functioning of any commercial bank, i.e. serves as the core on which all activities of a commercial bank rest from the first day of its existence.

Despite the insignificant share in the resources of a commercial bank, its own capital performs a number of vital functions:

• protective;
• operational;
• regulating

Protective function

This is the main, main function of a commercial bank’s own capital. It is actually its general property. Due to its permanent nature, equity capital acts as the “main means of protecting” the interests of depositors and creditors, from whose funds a significant share of the bank’s assets is financed. This is a kind of “safety belt” that allows them to receive compensation for losses in the event of bank liquidation. In banking practice, equity capital is considered as the amount within which the bank guarantees liability for its obligations.

At the same time, equity capital serves to protect the bank itself from bankruptcy. Having an irrevocable nature, it allows the bank to carry out operations despite the occurrence of large unforeseen losses, compensating for current losses until the bank management resolves the problems that have arisen. It is no coincidence that in the economic literature it is compared to a “shock absorber”, called “a kind of pillow”, “money for a rainy day” and, finally, the “ultimate line of defense”.

Operational function

Throughout the entire period of operation of the bank, its own capital is the main source of formation and development of the bank’s material base, providing conditions for its organizational growth. So, in order for a new bank to start operating, it needs funds to carry out such priority expenses as purchasing or renting premises, purchasing the necessary machinery, equipment, etc. The equity capital formed at the stage of creating a commercial bank acts as starting funds for reimbursement of such costs.

During a period of growth, any operating bank is interested in both establishing long-term relationships with its clientele and attracting new solvent clients. This forces the bank to work towards expanding the range of banking services, improving their quality, increasing the number of developments, introducing advanced banking technologies, new software products, updating equipment, as well as carrying out structural measures (in particular, creating a branch network both within the region and outside of it). The financial base of the bank, as well as a means of protecting it from the risk associated with organizational growth and deployment of operations, is its own capital.

Regulatory function

This function is connected, on the one hand, with the special interest of society in the normal functioning of commercial banks and maintaining the stability of the entire banking system, and on the other hand, with the norms of economic behavior that make it possible to control the activities of the bank. It, as well as the previous ones, embodies the protective property of the bank’s own capital. The latter is designed to protect a commercial bank from financial instability and excessive risks, acting as a regulator of its activities, namely, to support the uniform, orderly growth of banking assets and regulate the volume of almost all passive operations.

The listed functions of equity capital help reduce the risks of banking activities.

Characteristics of individual elements (sources) of equity capital

Initially, at the stage of creating a commercial bank, the only source of its own capital is the authorized capital. The remaining sources are generated directly in the process of the bank's activities. As they are created, the authorized capital becomes part of the bank's equity capital, but continues to remain its main element. Authorized capital, forming the core of equity capital, plays a significant role in the activities of a commercial bank. It is he who determines the minimum amount of property that guarantees the interests of the bank’s depositors and creditors and serves as security for its obligations. It is this that allows a commercial bank to continue operations in the event of large unforeseen expenses and is used to cover them if the reserve funds available to the bank to finance such expenses are insufficient. Banking analysts proceed from the fact that a bank, unlike other commercial enterprises, maintains its solvency as long as its authorized capital remains intact.

Share premium for a credit organization in the organizational and legal form of a joint stock company, this is the positive difference between the price of shares when they were sold by the first owner and the par value of the shares. This income is included in the calculation of fixed capital after the Bank of Russia registers a report on the results of the issue.

The share premium of a credit organization in the legal form of a limited liability company is the positive difference between the value of the shares when they are paid by participants when increasing the authorized capital and the nominal value of the shares at which they are included in the authorized capital. This income is included in the calculation of fixed capital after registration in the prescribed manner of changes in the amount of authorized capital.

Credit organization funds(reserve and other funds) formed in accordance with the requirements of federal laws and regulations of the Bank of Russia in the manner established by the constituent documents of the credit organization, are included in the calculation of fixed capital based on the data of the annual balance sheet, confirmed by an audit organization.

Funds that are a source of credits (loans) to employees of a credit organization, funds for material incentives and economic incentives, as well as other funds, as a result of the use of which the value of the credit organization’s property decreases, are not included in the calculation of own funds (capital).

Profit of previous years and current year included in fixed capital based on data confirmed by an audit organization.

A number of items act as sources of additional capital. Let us characterize some of them.

Increase in property value due to the revaluation of fixed assets, it is included in the calculation of additional capital no more than once every three years based on the data of the latest annual balance sheet confirmed by an audit organization.

A hybrid instrument such as subordinated loan. It is provided to a commercial bank for a period of at least five years and can be claimed by the creditor only upon expiration of the agreement, and in the event of liquidation of the bank - after full satisfaction of the claims of other creditors.

However, despite the fact that the subordinated loan is not subject to repayment at the initiative of its owner, it continues to remain a fixed-term debt obligation and, as a rule, cannot be fully used to cover the bank's losses, which served as the basis for introducing additional restrictions on its size. In particular, a subordinated loan used as an element of additional capital cannot exceed 50% of the value of the fixed capital.

Calculation of the bank's equity capital and its adequacy

Equity capital as the totality of all sources of fixed and additional capital listed on the bank’s balance sheet is gross equity capital of the bank (gross capital). However, in Russian banking practice, to calculate economic standards, open currency position limits and in other cases when the bank’s own funds (capital) are used to determine the value of prudential banking standards, the indicator is used net equity capital (net capital) which represents the amount of own funds actually available to the bank and can be used as credit resources. Net equity is determined in stages.

The first stage is determining the amount of net fixed capital. And from the sum of all sources of fixed capital available to the bank, which, as already noted, constitute the first level of the bank’s gross equity capital, intangible assets minus accrued depreciation are excluded; own shares purchased by a commercial bank from shareholders; uncovered losses from previous years; current year loss; investments in shares (participation shares).

The second stage is to determine the actual amount of additional capital (i.e., taking into account restrictions), which will be included in the calculation of the bank's net equity capital. The amount of sources of additional capital of the bank is compared with the resulting amount of net fixed capital. If this amount turns out to be less than or equal to the amount of net fixed capital, then all of it will be included in the calculation of additional capital. Otherwise, it must be reduced to an amount equal to the amount of net fixed capital, which was calculated at the first stage. If the resulting net fixed capital value is zero or negative, then sources of additional capital will not be included at all in calculating the bank’s equity capital.

Thus, the maximum ratio between the various parts of the bank’s equity capital is achieved: the sum of the elements of additional capital should not exceed 100% of the net fixed capital.

The third stage is calculating the amount of net equity capital. From the total amount of net fixed and additional capital obtained as a result of the two previous stages, subtract the amount of uncreated reserves for possible losses on loans of the 2-5th risk groups, for depreciation of securities and other assets, overdue receivables lasting more than 30 days, provided subordinated loans.

The bank's net equity capital must be positive. Its negative value indicates that a commercial bank actually does not have free funds of its own, and exclusively borrowed funds are used to cover the bank’s unforeseen expenses. As a result, the financial stability of a commercial bank is significantly reduced, which leads to serious complications and additional difficulties in the event of a crisis situation.

Capital adequacy reflects the overall assessment (mainly by regulators) of a bank's reliability.

This means that a bank will be considered reliable in terms of its capital if the parameters of the latter fit into the calculation standards developed empirically either by the banking community or by the body regulating banking activities.

World banking experience has developed a method based on the advisability of linking the amount of capital with the level of risks of active operations of banks.

In accordance with the Instruction of the Bank of Russia dated January 16, 2004 No. 110-I “On Mandatory Standards of Banks,” when calculating the regulatory capital adequacy of a bank, its assets are grouped depending on the degree of risk of investments and the possible loss of part of their value. Weighting of assets by risk is done by multiplying the funds in the relevant balance sheet account or part thereof by the risk factor. The assets of Russian banks are divided into five groups by risk level with weighting coefficients of 0-2, 10, 20, 50 and 100%. Zero risk is assigned to funds in correspondent and deposit accounts with the Bank of Russia, mandatory reserves transferred to the Bank of Russia, bank funds deposited with checks for settlements, funds in savings accounts for the issue of shares, investments in Bank of Russia bonds, unencumbered liabilities, and other funds. On the contrary, the Bank of Russia has established the highest degree of risk (50-100%) for funds in accounts in banks - residents of the Russian Federation and in banks - non-residents of countries not included in the group of developed countries, for securities for resale and other assets.

Capital adequacy ratio a commercial bank is defined as the ratio of the bank's own capital to the total volume of risk-weighted assets, and its minimum acceptable value is set depending on the size of the bank's own capital. The minimum acceptable value of the bank's own capital adequacy ratio (captain), as well as the minimum amount of capital of a newly created bank, changed with changes in the operating conditions of banks. Thus, until 1996 the standard was 4%, then it was increased to 5% and then, increasing annually, reached 8% by February 1999. From January 1, 2000, the value of this standard was established for banks with a capital equivalent to 5 million euros and above at 10%, and for banks with a capital of less than 5 million euros - 11%. These figures correspond to the capital adequacy standard (8%) set by the banking community (Basel Committee on Banking Supervision).