Question

what is the most important aspects of running a commercial bank? how will a owner relate their activities of running their operation to the different regulatory agencies and regulations?

Answer 1

Q1: what is the most important aspects of running a commercial bank?

A1. A commercial bank is a financial institution which performs the functions of accepting deposits from the general public and giving loans for investment with the aim of earning profit.The objective of the bank is to lend at a higher rate known as Lending Rate & Borrow from the investors at a lower rate , thus making a spread income.

The basic role of a commercial bank is to provide financial services to the general public and also ensure economic stability and sustainable growth of a country’s economy

The important aspects / functions of a commercial bank are:

1. Accepting Deposits

2. Advancing Credit Facilities

3. Credit Creation

4. Agency Function (collecting and paying cheques, dividends, interest warrants, and bills of exchange)

5. Other Miscellaneous Functions (Eg: Locker Facilities)

Q2:  how will a owner relate their activities of running their operation to the different regulatory agencies and regulations?

Some of the aspects w.r.t. Regulation the owner has to look into are:

1. Licensing and supervision

Licensing provides the licence holders the right to own and to operate the bank.The licensing process is specific to the regulatory environment of the country / state where the bank is located. It involves  an evaluation of the entity's intent and the ability to meet the regulatory guidelines governing the bank's operations, financial soundness, and managerial actions.

Supervisory activities include evaluation of the reports submitted by the bank to check for any frauds or abnnormalities. It may also involve on-site inspection.

2.Fulfilling Minimum Requirements

The national bank regulator imposes certain minimum requirements on banks in order to check their level of activity. They may include limit to the level of risk exposure for a certain sector of the bank , minimum capital ratios, minimum reserve requirements, credit rating requirement or disclosure requirements.