Quick viewing(Text Mode)

The Academy of Economic Studies of Moldova

ACADEMY OF ECONOMIC STUDIES OF DEPARTMENT OF APPLIED MODERN LANGUAGES

A.TALPĂ, A. ZUBIC

BANKING SYSTEM (Essence and Particularities)

Editura ASEM Chişinău – 2005

CZU 336.7(076.5)=111 T 14

Lucrarea a fost examinată şi recomandată pentru editare la şedinţele catedrelor „Bănci şi Burse de valori” (proces-verbal nr. 5 din 10.01.05), „Limbi moderne aplicate” (proces-verbal nr. 6 din 04.04.05) şi Comisiei metodice a facultăţii „Finanţe” (proces-verbal nr. 5 din 21.04.05)

Referenţi: conf. univ. dr. E. Ruga, conf. inter. dr. A. Rotaru

Descrierea CIP a Camerei Naţionale a Cărţii

Talpă, A. Banking System: (Essence and Particularities) / A.Talpă, A. Zubic; Acad. of Econ. Studies of Moldova. Dep. of Applied Modern Languajes. – Ch.: Dep. Ed.- Poligr. al ASEM, 2005. – 79 p. Bibliogr. p. 73-74 (28 tit.) ISBN 9975-75-308-6 100 ex.

336.7(076.5)=111

A.Talpă, A. Zubic

ISBN 9975-75-308-6

© Departamentul Editorial-Poligrafic ASEM

1 CONTENTS

INTRODUCTION

1. THE CONCEPT OF BANKING SYSTEM 2. THE HISTORY OF THE BANKING SYSTEM IN THE REPUBLIC OF MOLDOVA 3. THE STRUCTURE OF MODERN BANKING SYSTEMS 4. THE NATIONAL OF MOLDOVA – THE OF THE STATE 5. THE 6. THE PRINCIPLES OF BANKING OPERATIONS 7. PASSIVE OPERATIONS OF COMMERCIAL AND BANK LIABILITIES MANAGEMENT 8. ACTIVE OPERATIONS OF COMMERCIAL BANKS AND BANK ASSETS MANAGEMENT 9. BANKING BEHAVIOUR 10. THE CHARACTERISTICS OF COMMERCIAL BANKS OPERATIONS 11. CONCLUSION 12. GLOSSARY 13. TEST YOUR KNOWLEDGE 14. BIBLIOGRAPHY 15. ENCLOSURES

2 INTRODUCTION

The market economy requires the constitution of a sound banking system that would provide its citizens with new payment ways and modern technologies. The main function of an efficient economy is to insure the mobilization of currency means. The goal followed by the banking system is the attraction and concentration of societies’ economies and making investments. It appears as a need of the society we live in. By means of commercial banks, currency is accumulated from natural and legal persons and money is distributed into the economy. The purpose of every is to provide a large assortment of bank services. The constitution of the banking system in the Republic of Moldova has undergone more developing stages. Its development depended on the evolution of the currency in the country and on the country’s currency relationships with other countries. Nowadays the banking system is divided into two levels: the Central Bank and other banks existing in the system. The of Moldova has important functions that are performed only by itself: to issue currency, to elaborate the , it is a currency center; it supervises the commercial banks in the country etc. Firms and enterprises’ activities depend, to a great extent, on the efficient activity of the banking system. Banks are functioning in the capacity of agents between capital holders and capital users by collecting financial resources and placing them on the market by means of . Banking activities are tightly connected with the economic activity of the country and this fact allows us to take the decisions correctly, in conjunction with the financial – monetary policy of the state.

3 1. THE CONCEPT OF BANKING SYSTEM

The financial and monetary space is based on the institutional structure, which highlights the role of the Central Bank and of all financial institutions that deal with the financial and monetary network in any economy. The essence of this concept consists in the constitution of the financial framework of the financial system, which would ensure the differentiation and specialization of financial institutions and instruments. The history of the banking system foundation stems from the past and there are very old proofs that denote the practice of some activities, which in one or another form, can be considered as the first steps taken on the banking practice realm. Scientists have discovered different statements referring to the banks’ origin. Some investigators state that the first evidence of a banking practice was found in Ancient Egypt and in the Near East (Babylon). At that time temples were both a place for making prayers and a place for keeping money and treasuries. Lending those treasuries, priests accomplished one aim: they obtained a small profit and gratitude. The trust inspired by the temples favored the development of monetary intermediation. The notion of the bank is associated with the moment of the appearance of the first bankers who exchanged money, reflecting, in this way, the appearance and circulation of the metallic coin. According to the opinions of other investigators the notion of the bank is associated with the appearance of a group of persons who had the idea to get money availabilities in the form of deposits and in such a way giving . In the Republic of Moldova the banking system has two levels and it is structured similarly with the banking systems of other countries such as: Great Britain, Germany, Austria and others, except for the USA. According to the Law of the Republic of Moldova – “The Law of Financial Institutions” No. 550 – 13 of the 21st of July 1995, the Banking System of the Republic of Moldova includes: − The National Bank of Moldova. − Commercial Banks and other Financial Institutions. The National Bank of Moldova that is the Central Bank of the Republic forms the first level. Being the sole body of issuing national money, it elaborates the policy in the field of money and credit circulation, ensures banking control and puts it into operation. The National Bank of Moldova is supervised by the Parliament of the Republic of Moldova and it operates in accordance with the Law of the Republic of Moldova “With reference to the National Bank of Moldova”. Commercial banks form the second level of the banking system and they perform banking operations for people, enterprises and organizations. According to Article 3 of the Law “With regard to Financial Institutions”, "a bank is a that attracts from natural or legal persons, deposits or their equivalents transferable through different payment instruments and that uses these means totally or partially in order to grant or to make investments on its own account and risk”. “A commercial bank is an institution that attracts from natural and artificial persons money and it distributes it on its behalf in the conditions of reimbursement, solvency and other terms”. Financial – Credit Institutions in the contemporary economy are participants with full rights on the market, chief-accountants of accumulated resources and they determine on their own the ways of access to the monetary and stock exchange market. Financial-Credit Institutions comprise not only banks but also associations, pension funds, investment companies and insurance companies. The competition to attract money and a more reasonable investment of it contributes to the maintenance of the adequate quality of services and the introduction of modern technologies in the field of . In order to provide an efficient activity of industrial enterprises and other economic fields, a very big importance has their credit relationship and settlements of accounts with the banks intended to strengthen their economic relationship, to expand the production of consumer goods, to stimulate small business and the development of the technical and scientific progress in the Republic of Moldova. At present there are officially recorded 16 commercial banks and two branches, and this fact reflects the specifics of the banking system in the country and can be shown in the following diagram:

4

The Banking System in the Republic of Moldova

The National Bank of Moldova The Banking System in the Republic of Moldova Commercial Banks and other Financial Institutions

Giving loans and taking deposits are the main functions of commercial banks. They receive and distribute deposits, attract and give credit, settle the accounts at the customers’ and correspondent banks’ request and provide pay desk services. Banks can perform other operations that do not contravene the legislation of the Republic of Moldova, stipulated in its charter. Banks are forbidden to operate in the field of material goods and do business in precious goods, as well as to provide all kinds of insurance except for currency and credit risk insurance. The juridical framework of banking activities includes the following laws and other legislations: − The Law “With regard to the State National Bank of Moldova”; − The Law “With regard to Financial Institutions”; − Bank charters; − Other legislative Acts of the Republic of Moldova. Banks represent one of the most spread types of credit institutions that today provide the majority of credit and financial services. The market economy supposes the existence of a solid banking system that would ensure the mobilization of money availabilities of the economy and direct it towards certain efficient economic activities.

2. THE HISTORY OF THE BANKING SYSTEM IN THE REPUBLIC OF MOLDOVA

The development of commerce and the acquisition of capital have lead to the appearance of modern banks. In a modern economy the distribution of credit is a basic function of the specialized institutions that are called banks. At present, the place and role of banks in the economy is tightly connected with their function of principal go-betweens in the relationship: savings – investments that is a decisional relationship in the economic growth. Banks have proven themselves to be financial institutions, whose main characteristic is the possibility to put in circulation commercial papers on their own by increasing the quantity of payment means and the volume of monetary circulation. The significant characteristic of these go- betweens is the transformation of money assets into money. The first banks appeared in Bassarabia in the second half of the 19th century. After a short time when the State Bank in Russia was founded (in 1864), one of its branches was opened in Chişinău. Its main function was to give loans to the biggest businessmen and landowners. In 1960 the banks of Grimberg and Danin were founded, in 1871 it was set up the Commercial Bank of Chişinău, in 1872 – the Municipal Social Bank of Chişinău and later a branch of a discount bank from Odessa. In 1901-1910, other commercial banks from Russia opened their branches in Bassarabia that were giving mortgage loans such as: the Russian –Austrian Bank, the Russian Industrial - Commercial Bank, the Commercial Bank from Petersburg. In 1918-1940 the Romanian Banks were first opened, then the local banks. At the end of 1944 the unique banking system of Russia was introduced in Moldova. The Moldavian Republican Branch of the State Bank of the USSR and its 47 sections constituted the main

5 network of the banking system. The second network of the banking system of Moldova was “Stroibank” with its 12 branches and 28 centers. The third was the with its 1475 savings houses that were organizing the receipt of deposits from population and the investment of government bonds. After the declaration of independence of the Republic of Moldova, the banks started to operate according to the Law of Financial Institutions issued by the National Bank of Moldova. Initially, 22 commercial banks were recorded and the majority of them had a network of branches such as sections, representatives and agencies. In 2002, 19 commercial banks were recorded and today there are 16 commercial banks and two branches in our country. The National Bank of Moldova has stated that banks, depending on their total positive normative capital, can obtain one of the three types of licenses. The license of type “A” offers the right to provide all kinds of operations only in national currency whose total positive normative capital amounts to 50.000.000 lei. The license of type “B” offers the possibilities to provide operations not only in national currency but also in any foreign currency in the world. Banks must have 100.000.000 lei as total normative capital. To obtain the license of type “C” and together with it the possibility to operate directly with government securities, only the financial institutions whose total normative capital exceeds the sum of 150.000.000 lei can rely on. At the end of 2002, 6 commercial banks out of 16 held licenses of type “C”, 9 commercial banks got licenses of type “B” and only one bank had a license of type “A”. The following commercial banks: “Moldova – Agroindbank”, „Victoria – Bank”, „Banca Socială, „Moldimconbank”, „Banca de Economii”, „Mobiasbancă” operate with the authorization of type “C”. Other banks such as: “Comerţbank”, “Unibank”, “Banca de Finanţe si Comerţ”, “Universalbank”, “Businessbank”, “Energbank”, “Română”, “Investprivatbank”, “Eximbank” have got he license of type “B” and only the commercial bank “EuroCreditBank” is holding the license of type “A”. Private commercial banks are the banks whose capital belongs to one person or a group of persons. Such banks were founded among the first ones and the capital holders were usurers. They operate as joint-stock companies and their capital is divided into a number of shares. At present, 15 commercial banks with private capital exist in the Republic of Moldova and only one bank with mixed capital (state and private) “Banca de Economii”. In order to obtain a banking license the applicants lodge an application letter with the National Bank of Moldova enclosing a set of documents, which must be drawn up in the official language of the Republic. These documents include: the application letter, the minutes, the charter, the Internal Regulations, the Contract of Foundation, the Business-Plan.

3. THE STRUCTURE OF MODERN BANKING SYSTEMS

The banking systems of the world have many similarities, but they also differ, sometimes in quite material respects. The principal differences are in the details of organization and technique. The differences are gradually becoming less pronounced because of the growing efficiency of international communication and the tendency in each country to emulate practices that have been successful elsewhere. Banking systems may be classified in terms of their structure as unit banking, branch banking or hybrids of the two. For example, unit banking prevails in large areas of the USA. In other countries it is more usual to find a small number of large commercial banks, each operating a highly developed network of branches. This is the system used in England and Wales. Examples of hybrid systems include those of France, Germany and India where banks that are national in scope are supplemented by regional or local banks. Some of these hybrid systems are slowly changing their character, the banks becoming fewer in number and individually larger, with a larger number of branches.

6 THE UNITED KINGDOM OF GREAT BRITAIN

If the banks can be taken as representative of a unit banking system, the British system is the prototype of branch banking. Its development was linked to the growth of transportation and communications, for otherwise banks cannot clear drawn on other banks and effect remittances speedily and efficiently. The Scots favoured branch banking from the very beginning (the Bank of Scotland was founded in 1695), but at first they were not very successful – largely because of poor communications and the difficulty of supplying branches with adequate amounts of coin. Not until after the Napoleonic Wars, when the road system of Scotland had been greatly improved, did branch banking begin to develop vigorously there. As the Industrial Revolution progressed and as the size of businesses increased, the structure of English banking underwent a corresponding change. Great resources were required for lending, and banks also needed more extensive interconnections in order to provide an increasing range of services. Where banks remained small, they were frequently unable to take the strain of the larger demand; they tended to become overextended and often failed. The growth in size of banks was greatly encouraged by legislation that encouraged joint – stock ownership, beginning in 1826. Joint – stock ownership, which reduced the risk to any individual, must be distinguished from limited liability, which did not become widely accepted until the failure of the City of Glasgow Bank in 1878 demonstrated the need for a legal device to protect the stockholder. The early joint-stock banks tended to remain localized in their business interest; it was only gradually (with the spread of limited liability and disclosure of accounts) that amalgamations began to convert the banking system in England and Wales into its highly concentrated modern form. The main movement was completed before the World War I, though there was to be a further degree of concentration in the years after World War II. By these means, British banks were able to attract deposits from all parts of the country and to spread the banking risk over a wide range of industries and areas.

THE UNITED STATES OF AMERICA

Bank organization in the United States during the years after World War II was still passing through a phase of structural development that many other countries had completed some decades earlier. Development in the USA has been subject to constraints not found elsewhere. The federal Constitution permits both the national and state governments to regulate banking. Some states prohibit branch banking, largely because of the political influence of small local bankers, thus encouraging the establishment and retention of a large number of unit banks. Even in its yearly ears, the USA had an unusually large number of banks. As the frontiers of settlement were pushed rapidly westward, banks sprang up across the country. One reason for this was the demand for capital in the expanding frontier economy. There was also an obvious need for a large number of banks to serve the diverse and rapidly expanding demands of a growing and constantly migrating population. It must be remembered, too, that at this time communications between the frontiers of settlement and the established centers of commerce and finance were still inadequately developed. As long as communications remained imperfect, the existence of a large numbers of competing institutions is not difficult to explain. The subsequent failure of bank mergers or amalgamations to produce a concentration of financial resources in the hands of large banking units can be attributed in part to the character of the federal Constitution as noted above. Among the people, moreover, there was a widespread distrust of monopoly and a deep – rooted fear that a “money trust” might develop. This went hand in hand with a political philosophy that emphasized the virtues of individualism and free competition; restrictions of branching, merging, and on the formation of holding companies were a feature of both the state and the federal banking laws. Where permitted, however, bank branches are numerous in the USA (especially in and in New York); in states in which branching is prohibited, one often finds local bank monopolies in small towns. Federal law prohibits interstate banking, but large banking organizations have provided financial services (e.g. through loan offices and offices of non-bank subsidiaries) for many years across state lines. A number of states have passed limited interstate or reciprocal banking laws, so that banks in other states with similar laws can acquire

7 or merge with local banks. The banking system of the USA would not work without a network of correspondent bank relationships, which are more highly developed there, than in any other country. From 1970s there was acceleration in the evolution of US banking patterns. Unregulated financial institutions (and some no financial institutions) moved into traditional banking activities; at the same time, depository institutions began offering a fuller range of financial services. Money-market mutual funds, for example, secured access to open market interest rates for investors with relatively small amounts of money. Securities firms and insurance companies moved aggressively into providing a range of liquid financial instruments. Likewise, large manufacturing and retail firms moved into the commercial and retail lending businesses – by acquiring a savings and loan association, a securities and brokerage house, an industrial loan company, a consumer banking business, or even a commercial bank. Meanwhile, depository institutions developed a number of new services, most notably the Negotiable Order of Withdrawal (NOW) account, an interest – bearing with a near substitute for checks. These appeared first in 1972 in New England and after 1980 spread to the whole nation; they were offered both by commercial banks and by thrift institutions. Share drafts at credit unions also became a means of payment, and after 1978 the automatic transfer services of commercial banks permitted savings account funds to be transferred automatically to cover overdrafts in checking accounts. So - called Super-Now accounts (with no ceilings and unlimited checking facilities with a minimum balance) were subsequently introduced, along with money-market deposit accounts, free of interest rate restrictions but with limited checking. Rapid changes in financial structure and the supply of financial services posed a host of questions for regulators, and, after much discussion, the depository Institutions Deregulation and Monetary control Act was passed in1980. The object was to change some of the rules – many of them obsolete under which U.S. financial institutions had operated for nearly half a century. The principal objectives were to improve monetary control and equalize more nearly its cost among depository institutions; to remove impediments to competition for funds by depository institutions, while allowing the small saver a market rate of return; and to expand the availability of financial services to the public and reduce competitive inequalities among financial institutions offering them. The major changes were: (1) Uniform Federal Reserve requirements were phased in on transaction accounts (demand deposits, NOW accounts, telephone transfers, automatic transfers, and share drafts) at all depository institutions – commercial banks (whether Federal Reserve members or not), savings and loan associations, mutual savings banks, and credit unions. (2) The Federal Reserve Board was authorized to collect all data necessary for the monitoring and control of money and credit aggregates. (3) Access to the at Federal Reserve banks was widened to include any depository institution issuing transaction accounts or no personal time deposits. (4) The Federal Reserve was to price its services, to which all depository institutions would now have access. (5) Regulation Q, which had long set interest-rate ceilings on deposits, was to be phased out over a six-year period. (6) An attempt was made to grasp the nettle of the state usury laws. (7) NOW accounts were authorized on a nationwide basis and could be offered by all depository institutions. Other services were extended. (8) The permissible activities on thrift institutions were broadened considerably. (9) Deposit insurance at commercial banks, savings banks, savings and loan associations, and credit unions was raised from $40,000 to $ 100,000. (10) The “truth in lending” disclosure and financial regulations were simplified to make it easier for creditors to comply.

HYBRID SYSTEMS

A third group of banking systems differs from the unit banking system of the USA and also from the branch banking systems of the countries that have followed the British model (such as Australia, Canada, New Zealand and South Africa). This group is characterized by the existence of a small number of banks with branches throughout the country, holding a significant part of total deposits, along with a relatively large number of smaller banks that are regional or local in emphasis. Such systems exist in France, Germany and India. Japan has a small number of large city banks with branch networks but a large number of local banks.

8 FRANCE

Banking institutions in France were classified after World War II into three main groups: deposit banks, banques d’affaires (or investment banks), and institutions that were either specialized or operated mainly outside France. New banking legislation in 1966 greatly reduced the importance of the distinction between deposit banks and banques d’affaires. There was also (1) a further concentration of banking resources, as a result of several large mergers and also of great financial integration through share-exchange agreements and interlocking directorates, and (2) the conversion of a number of banques d’affaires into deposit banks, which hived off their investment interests into separate investment or holding companies. Further legislation in 1982 nationalized the remaining large and medium-sized banks (36 in all, plus two financial holding companies – those of Indosuez and Paribas); the largest deposit banks had already been nationalized after World War II. Another new law in 1984 abolished the old divisions between the several categories of banks, which were now defined simply as etablissements de credit, able to receive deposits from the public, undertake credit operations (including loans), and provide means of payment. The intention was to move cautiously toward a system of “universal banking”. The new law was extended to cover the Caisse Nationale de Credit Agricole, the banques populaires, the credit mutual, the central organizations of the cooperatives and the savings banks (the thereby institutions affiliated with them), and semipublic institutions like the Credit Foncier and the Credit National, but not the Caisse des depots et Consignations nor the central banking institutions. All the regional banks and some local banks have branches. The balanced character of the regional economies often provides these banks with a good portfolio of risks; they serve not only a prosperous agriculture but also a number of local industries. Some of the local banks are also very sound institutions, despite their small size. The survival of a hybrid system in France, despite the long-run trend toward centralization, reflects certain characteristics of French society. These included, until recently, a strong emphasis on small business, together with a preference for individual and personal service. Particularism in some parts of France manifests itself in support for local institutions, and the local banker also often has the advantage of special knowledge of local industries and people, which makes possible the acceptance of risks that the big banks decline.

GERMANY

An even more direct conflict between the forces favouring concentration and those working against it may be seen in Germany, where banking grew in the latter part of the 19th century along with industry. The banks were inclined to rely mainly on their own capital resources and did not at first try to attract deposits from the public. Not until 1874 did the Deutche Bank A.G. begin to seek deposits through offices specially opened for the purpose. This was done to provide cheap finance for traders, the deposits being invested in mercantile bills that were regarded as both safe and liquid. In pursuit of deposits, the banks built up a widespread network of branch offices, which were also used to establish and maintain industrial contacts throughout the country. The unification of Germany in 1871 removed the political obstacles to a more integrated banking system, and the selection of Berlin as the capital made that city the country’s financial center. Four of the largest banks were already established there, the new Reichsbank was set up in 1876. In addition, the larger and the more enterprising of the provincial banks were attracted to the capital. The Berlin stock exchange rapidly displaced that of Frankfurt am Main as the country’s leading securities market. The Berlin banks extended their influence by developing correspondent relationships and subsequently by acquiring a financial interest in the provincial banks and being represented on their boards. Each of the big Berlin banks came to be associated with a group of provincial banks more or less under its control. At the same time, all of the banks, Berlin and provincial alike, expanded their business by opening branches.

9 During World War I the degree of centralization increased; by 1918 the big Berlin banks held more that 65 percent of total deposits. In the early 1920s there were amalgamations, and branch systems become much larger. Bank failures and the financial crisis of 1931 resulted in further consolidation until the German banking system was dominated by three giants. But there were countervailing forces. Probably the most important of these was the establishment of publicly owned banking institutions such as: the communal savings banks and their central institutions, the Girozentralen, which became of increasing importance after World War II. German savings banks, which were permitted to have checks drawn on them from 1909 and which had clearing from 1920s, now offer a wide range of services, especially to lower income groups and smaller businesses. The large commercial banks have concerned themselves more with big business and with wealthy individuals. The savings banks now compete in wholesale banking as well. A number of them, together with their Girozentralen, are to all intents and purposes “universal banks” like the Big three (the Deutsche Bank, the Dresdner Bank, and the Commerzbank) remain unchallenged only in stock exchange and foreign business. Of the private bankers, only about a half – dozen are of any size. The bigger private banks are important in the fields of investment and wholesale banking, while the smaller ones flourish in the leading stock-exchange cities, such as Dusseldorf and Frankfurt am Main. Many of these private bankers, however, are not bankers in the true sense; they subsist mainly on stock-exchange transactions, investment services, portfolio management, and insurance and mortgage brokerage. There are also consumer finance institutions, mortgage and other specialist banks, and a large number of cooperatives. Regional and private banks are often within the sphere of influence of the Big Three. In some cases the latter have a financial interest in these banks, and in some cases they own them. The Big Three have also shares in certain of the private mortgage banks. There are also “cooperation agreements”, and a number of mergers have taken place. In these several ways, much more integration exists than appears on the surface. While banking in Germany remains a hybrid system, a trend toward greater concentration is evident.

4. THE NATIONAL BANK OF MOLDOVA – THE CENTRAL BANK OF THE STATE

By and large, a national bank operates as a state body that establishes and coordinates the monetary and credit policy of the economy. The National Bank has a special role in keeping up the stability of national currency and people’s trust in banks. The National Bank of Moldova does not have a very long history. It was founded in 1991 on the 4th of June according to the decree issued by the President of the Republic of Moldova. It said that the Republican Bank of Moldova of the State Bank of the USSR was transformed into the National Bank of Moldova. Generally, the National Bank performs the following functions: − establish and implement the monetary and credit policy; − issue currency; − monitor the foreign currency exchange rates; − supervise the financial-banking institutions; − administer the currency reserves; − it operates as a bank for other banks; − it is a lender of the last resort; − it operates as a state agent and supervises the State Treasury; − it provides funds to the state; − it provides relationships with international financial-banking organizations; − it is an analyst of the monetary and economic conditions. The National Bank of Moldova also refers to the period of transition from a centralized economy to a market economy and it has special attributes to it. They are: − to insure a fair competition among banks;

10 − to encourage the development of a correct banking practice, that would support the development of a healthy private sector of the system. The National Bank decides which bodies can operate as banks and sets the rules of issuing the licenses of banking operations. It monitors the commercial banks operations, on the one hand, by asking periodically for financial and statistical reports, and on the other hand, by controlling them. Banks that are in financial trouble are to be supervised by the National Bank. If special conditions request this fact, it will provide a “ portfolio of escape”, so that people do not lose their trust in the banking system. The National Bank controls the level of and the rates of interest in the economy and it can be seen as a part of the general governmental macro-economic policy. The situation referring to the National Bank independence has lead to many disputes. As a rule, the National Bank collaborates with the Ministry of Finance in order to solve the main problems in terms of the monetary and financial policy. The “adequate” independence degree or the National Bank’s decisional autonomy (historically the issuing bank) has constituted a century dispute: trials to the government direct subordination have alternated with periods of independence, considered excessive. As to the European Unity, the Maastricht Treaty (1991) stipulates a high level of independence for the national banks of the member states. The arguments of those who are against the National Bank independence are linked with the fact that the macro-economic policy has larger objectives than to maintain a decreased rate of inflation. Meanwhile, it is argued that the economic activity decrease provided to carry out a low level of inflation will lead to high levels of unemployment and to the restriction of economic growth. The European Unity has decided that the European Central Bank is to have guaranteed under the law its independence in terms of creating a unique European currency. The National Bank is a state body, but the members of the Board of Directors of the National Bank of Moldova are appointed by the Parliament. On behalf of the Board of Directors, the governor of the National Bank of Moldova submits annually to the Parliament the report with reference to the credit and monetary situation. The National Bank is the single institution authorized to issue currency throughout the country. Actually, currency is issued in accordance with the economic growth. To over issue currency can lead to inflation; to hinder the governments to determine an inflationary process, through currency over issue, can be another argument for the benefit of providing independence for the National Bank. Money incorporates a series of specific characteristics so that it cannot be counterfeited; for example, the paper is made by means of a special technique or it has incorporated a metallic thread. The National Bank is in charge of taking up worn paper money, for the purpose to destroy it, when it becomes too dirty or deteriorated. This paper money is, as a rule, burnt or cut into small pieces, for security. Another role of the National Bank is the fact that it is a bank for banks, operating as a banker for other banks. The National Bank requests the other banks to keep at the National Bank, a quantity of deposits, in the form of reserves, such deposits do not bear interest (or they bear a very low rate of interest). This is an aspect of the general process of the currency control; by increasing or decreasing the level of its reserves, the National Bank can increase or reduce the banks’ capacity to grant credit. It can also keep the accounts of commercial banks, used in settling the inter-banks debts. The National Bank operates in the capacity of a treasurer of the state, keeping on its records the current account in behalf of the State Treasury. This account contains perceived taxes and other made payments of the State Treasury. The National Bank is not the creditor of the government, however, it helps the government to identify other sources of obtaining credit within the economic framework. When the government borrows money from the economy, the National Bank acts in the capacity of a go-between, its agent and consultant. The Government borrows from the national market, offering for sale securities, for example, treasury bonds and stocks. The National Bank, as a state agent, may act directly, or through other banks in the process of issuing bonds or other securities in order to sell or redeem them.

11 The National Bank also offers financial advice regarding the most appropriate stock offered for sale, the level of interest that must be paid, the conditions of giving credit and the moment when the offer for sale on the market has to be made. The sum of money owed by the government is called public debt. The National Bank manages the public debt, reimbursing the value of bonds and other securities, when they fall due and replacing them with new securities, if necessary. The general reduction of the public debt is carried out by the Central Bank, through buying government bonds from their holders and from the amounts allocated by the government. The National Bank keeps up the country’s reserves in gold, convertible currency and other securities, internationally recognized. The Central Bank uses these reserves, in that case, when it intervenes on the money market to control the evolution of the exchange rate of the national currency. Currency reserves are also used to guarantee the convertibility of the national currency on the money market. The Moldavian leu nowadays, is not a full convertible currency, but it is intended to create necessary conditions to guarantee the convertibility of the current account. Acting as a lender of the last resort, the National Bank gives loans to commercial banks and backs up those banks that, temporary, do not have sufficient liquid assets to pay the sums requested by the depositors. This is a temporary support. In order to grant long-term credit, banks have to solve their problems connected with liquidity; otherwise they have to cease their activity. The National Bank plays an important role in the international, economic and financial cooperation. It administers and keeps the records of the country’s financial operations with different international bodies, such as the International Monetary Fund or the Group of the World Bank. On behalf of the state the National Bank takes part in talks and external negotiations, with regard to financial, monetary and payment problems. A very important international financial institution is the Bank for International Regulations (BIR) from Basle (Switzerland). It was founded, initially, (in 1930) and it is responsible for transfers connected with international debts. BIR started to be considered “the central bank of central banks”. Except settling debts between central banks, the BIR is also in charge of solving the problems related to banking cooperation, concluding agreements regarding the rules that should govern the international financial transactions etc. The link between the state and the central bank is founded on the privilege of issuing currency that the state confers to it according to the royal right; this is an attribution to the state sovereignty. Being in tight connection with the privilege of issuing currency, the Central Bank becomes, matrimonially, the holder of gold expressed in terms of money and the holder of the country’s currency reserves. In the period of gold standard, expressed in terms of money, the Central Bank was, as a rule, the holder of the monetary gold stock for convertibility within the framework of an available issue in each country. The Central Bank performs very important credit operations based on the circulation and possession of securities. Thus, Lombard operations, granting securities mortgage loans have a high weight in many countries. Another important active operation of the Central Banks is the acquisition of state treasury bonds; these operations are carried out along with credit and banking institutions, which, as a rule, means re- crediting. Recrediting is a specific function of the banking system. In very few cases the initial credit remains engaged in the relationship until it falls due, until reimbursement. For a big part of credit we apply to recrediting resources, as a rule, through the transfer of accounts receivable. Recrediting is a normal state of the banking system as long as resources are formed in specific conditions and they are mobilized and correlated by specialized agents, while the credit necessities are met through other specialized fields of the credit system. Crediting relationships, as an expression of available capital and other specific resources in the economy include, necessarily, as an essential point of its function, recrediting processes. The Central Bank, through its potential to control a specific resource, in comparison with other banks, has a major role in recrediting processes in the economy, being often referred to as the last lender. Having a very important role in crediting the economy it is very important to note its attribution in the process of controlling and regulating the credit. Central banks have a major role in implementing in the economy judicious regulations regarding giving loans, as well as specific regulations of rapid decrease of credit in certain fields or branches. Another function of the central bank is to administer a

12 current system of influencing the economic development through credit, by the help of monetary and credit policies. The passage from the standard “gold-currency” to the standard “gold – foreign currency” in a big majority of advanced countries has implicitly stopped the functioning of the mechanism that was regulating the international monetary circulation and it has transmitted to the Central Bank an important part of its responsibilities to equilibrate the exchanges with countries from abroad. If in the conditions of the standard “gold - currency”, international exchanges were equalized on the basis of free international circulation of gold, i.e. no compensated balance from the exchange of goods and services was paid in gold, in the new conditions of convertibility this thing has not been allowed any more. The normal development of exchanges between two countries is possible only within the framework of the standard “gold – currency” functioning, only if the flow of goods, services and capital is equilibrated. Within this framework, an importance has the equilibration through a specific instrument of precaution and execution called “the ” whose supervision and good functioning, in many countries, is in charge of central banks. In the conditions of currency convertibility, the state is responsible for the constitution of the currency reserves that are formed and administered, as a rule, in the reserves of the Central Bank. Currency reserves represent the background of the Central Bank intervention on the money market in order to provide stability for the currency exchange rates. To protect the exchange rate is a major task, of a big importance in the national economy, and it is also in charge of the Central Bank. An unfavorable currency exchange rate for national money can determine a rate of losses for national goods, and in the last instance, determines an export of national revenue without equivalents. Contrary to this fact, an equitable rate of exchange provides the competitiveness of national goods and at the same time it covers the expenses and obtains profits at the level of international standards. Carrying out operatively its responsibilities in terms of currency: parity setting (where and when it is still used), other intervention operations on money markets have a special role in defending the national economy interests, in the conditions of the world commerce development at high levels. Participating as a member, in any of these organizations, the Central Bank has to accept certain behaviour rules in the field of money and credit to support the mechanisms that operate internationally and nationally as well. This means that the National Bank has to fulfill its assumed obligations regarding the contribution of the respective country to these organizations (the participation with resources, covering of expenses). The compensation network supposes making payments from banks to banks, for no compensated reciprocal payment balance. Evidently, this thing becomes possible for the bank of banks, where all banks have opened accounts and where making payment becomes possible only through the passage of sums from one account to another one.

A B A CENTRAL BANK P BANK A

BANK B

BANK C

BANK D

FIG.1 Payment relationships between banks.

Being considered as a bank of the state, the Central Bank can have three main motivations: - starting from the form of ownership; - expressing credit relations, especially being in the capacity of crediting the state; - it can be considered as an instrument of the state economic policy promotion.

13 As you will see later, all these assumptions are available for the majority of developed countries. As to the formation of capital, in the countries that started earlier their development, the Central Bank has been constituted prevalently through private ownership, operating as a joint-stock company. The main function of the bank is to issue currency that is reflected in all models, both in the unique representation of the balance and in the departmental special representation of the used type.

5. THE BANK OF ENGLAND

The Bank of England is the central bank of the state. Initially, it was founded in 1964 and transformed many times in the XIXth century. Its central residence is in London but in the province it has 8 branches (Birmingham, Bristol, Leeds, Liverpool, Manchester, Newcastle upon Tyne, Southampton and Law Courts). Beginning with 1946 it has been a state bank, the government was appointing the Board of Directors, which was formed of governors, and 16 directors. It receives instructions from the Treasury Department and at its turn gives instructions to other banks when and how it sees fit in order to protect the public interests. Starting with 1944 i.e. from Peel Act the functions of the Bank of England have been entrusted to certain distinct departments: 1. The Monetary Department whose main function is to issue notes at the Banking Department’s request and namely the issue was based 100% on gold and money issue was limited. The first limit was $19.000.000. then it was increased subsequently at different times with the Agreement of the Chamber of Communes in order to adapt to the economy. 2. The Banking Department that gets paper money from the Currency Department and provides banking operations. In 1970 the gold stock of the Currency Department was sold so that the coverage of the issue has since been made exclusively through the holders of the public debts and other securities. The introduction of the decimal system constituted the basis of the Monetary System on February 15th 1971. English banks keep (Clearing Banks) keep money availabilities on the accounts of the Bank of England, which are used to back up the liquidation through the compensation with receivables and inter-bank payables. The Bank of England controls the amount of money in circulation through a) open market operations i.e. buying and selling securities on the market, b) setting the proportions of the indebted reserves by other banks at the Bank of England, c) setting the banking interest, this is the minimum interest which the market members can discount (the treasury bonds of English government or the Bills of Exchange) at the Bank of England. The banking interest rate has an international importance accordingly as it influences the interest rate of the Monetary Market of London. As it is for currency rates after the devaluation of the dollar on the 18th of December 1972 the British Government advised that neither the fluctuation limits of 2,25% set by the IMF on December 18th 1971 nor the total fluctuation limit of 2,25% set by the Commune Market will be further respected. As a result, the pound rate has started to float freely on the Market. England has not adhered to the European Monetary System yet.

6. THE PRINCIPLES OF BANKING OPERATIONS

1. The origin and backgrounds of commercial banks. Although certain historians state that the existence of certain institutions of a banking type still existed in the primitive society, the concept of modern banks is connected with the Italian banks whose forerunners were Venice (1171) and Geneva (2407). The appearance of modern banks is tightly connected with the development of commerce and the accumulation of capital; it was an expression of the manufactured production development and the general expansion of the economy. Being linked to commercial needs and carrying out its operations through securities issue, for sure, banks have been given the role of commercial banks. Economic agents, the holders of currency had in the minted coin an important support in the development of exchanges and economic development, but money utilization supposed deficit aspects for them.

14 In this way, the transportation of money to its destination implied transport expenses associated with risk and expenses of theft prevention. Also, it was very disadvantageous for the currency holders the fact that holding in itself did not bring any profit. All these facts have channeled the capital holders to entrust this deposit to an agent in order to keep it safely, and to compensate him in the form of interest, proceeding from the use of the deposit by the agent as a crediting source. In this way, the defects of capital holders are eliminated, and the conditions to value amply and continually the capital of economic agents are created. It is also very important to state that the resources obtained from deposits constitute the background of capital redistribution through the credit given by banks. The role of commercial banks in the banking system Nowadays, the place and role of banks in the economy is tightly connected with the fact that they can be considered as principal agents in the relationship savings – investments, a decisive relationship in the economic growth, these investments represent the acquisition of equipment and installation, machines and inventory provided for the development of production and it represents another reality of the economy that affects economic agents. Economic agents find necessary resources for the use of investments, either through their own savings or through applying to credit that is given by banks in the process of recycling and making valuable the capital in the economy. As a result, the conditions of an ample capital redistribution are created and directed by a large network of agents, that exclusively at the very beginning and then with prevalence in the structure of the banking system formation were commercial banks or deposit banks. Banks have proven themselves essentially to be monetary institutions, monetary go-betweens, whose essential characteristic is the possibility to put in circulation money availabilities for themselves that will increase the quantity of payment means and the volume of the monetary circulation. The essential characteristic of these agents is the transformation of non – monetary assets into money. Money issue, a function initially opened to all banks and restricted to the issuing bank, represents the principal form of monetary creation and an important framework through which the expansion of money takes place. Typical commercial banks have prevalence in also by transforming non-monetary assets (bills of exchange, bonds) that do not have liberated power, in payment instruments. Recording in bank accounts the given credit constitutes the moment of creating specific additional money, paper money. In different historical conditions, depending on their own conditions, all developed countries had to differentiate the functions of the issuing bank, the latter ones concentrating on a single bank, the Central Bank. Although, the national structures of banking systems are very diverse, holding deeply the stamp of previous evolutions, or of certain continuous traditions, and being similarly subject to new changes at a specific period, the following banks have been differentiated all over the world: − Deposit banks and − Specialized banks. Commercial banks or deposit banks are characterized by the fact that they provide all kinds of banking services, they have a diversified activity that can be modified freely, depending on their requirements, possibilities and own management. But the basic operations are represented through the constitution of deposits and their use to give loans to economic agents. They are organized as commercial companies and their purpose is to obtain profits. Specialized banks include a large sphere of credit institutions, with a large assortment of differences and implicitly with specific charters from country to country.

7. PASSIVE OPERATIONS OF COMMERCIAL BANKS AND BANK LIABILITIES MANAGEMENT

15

Passive operations represent for banks the operations of accumulating resources. In the activity of commercial banks such passive operations have lasted for a long time: accepting deposits, discounting and similar operations, and the constitution of its own capital. The constitution and utilization of deposits represent one of the most important functions of banks, generally, and of those of deposit, especially. Bank deposits have a double character. On the one hand, they create obligations of some banks against their depositors that result from the mobilization of the temporary available capital, and these facts represent important ways of the credit resources constitution. On the other hand, bank deposits represent for depositors obligations against banks, payment means, which they can use at any time, to make different payments through operating in the account. Bank deposits represent a principal form of capital and savings mobilization temporary available. The way in which these crediting resources will be estimated depends on their kind and terms. In this way, deposits at sight or demand deposits are characterized through flexibility, and this characteristic determines the depositors to use them at any time for payments in accounts or withdrawals from the accounts, according to their requirements, fact that can influence their abrupt diminishing. Deposits at sight represent the most stable resource of commercial banks. Actually, they have more forms of existence. Current accounts represent a special form of servicing the account holders. There are accounts through which the economic agents as natural persons develop their cash operations. In this way, the bank records in these accounts entrances through checks, transfers, money orders held by other persons in behalf of account holders. Also, by means of accounts, the bank fulfills the orders given by the account holders regarding payments to their creditors through checks, transfers, money orders etc. Time deposits are through their nature intended for a longer period. These deposits provide their clients with more restricted possibilities in comparison with those that refer to the movement of accounts through cashing or effecting payments. Some banks use restrictions regarding withdrawals. For commercial banks this is the main form to attract deposits. Rediscounting is a means to get new resources by giving the portfolio of commercial papers, obtained from discounting, to another bank, discount bank or issuing bank. Similarly to rediscounting, banks can perform Lombard operations, operations of giving loans pledged on commercial papers: stocks and treasury bonds, operations through which the deposit bank obtains from the issuing bank short-term resources, capitalizing in this way securities. Rediscounting and Lombard operations are concrete operations through which recrediting activities take place; this is a process of an ample extension and in continuous evolution in the modern economy. These operations are used for banking equilibration, the operative insurance of covering the credit needs, by attracting the sources spread in the economy. Bank capital and its reserve funds, constituted from gross profit have a reduced role in forming the bank crediting resources. Generally, a big majority of banks are companies with limited liability that form their own capital by issuing money and shares. On analyzing the structure of bank liabilities and their management we have to keep in mind the situations of credit that exist on the national monetary markets that reflect evolutions and specific trends. Deposits regulations, having as a principal objective a regime of low interest, had played an important role in re - directing the depositors towards other means of obtaining profit, essentially, by the transformation of money availabilities destined to depositors, engaged in an obligatory credit relationship, into financial savings.

8. ACTIVE OPERATIONS OF COMMERCIAL BANKS AND BANK ASSETS MANAGEMENT

Active operations of commercial banks are the operations in which banks use their resources in order to fulfill the conditions of charters and to get a profit. Active operations are mainly grouped in:

16 − Operations of crediting the firms − Operations of crediting the natural persons − Investment operations Operations of crediting the individuals. Similarly to firms’ crediting the banks channel their crediting technique depending on the effective requirements of customers. The categories of population expenditures on which the credit given by commercial banks are axed are; − LOCATIONS − GOODS OF LONG-TERM USE − CURRENT EXPENDITURES Investment or placement operations The accumulation of commercial papers and shares constitutes a way of placing the banking resources into other banks to obtain profit. The laws of banking organization stipulate, in the majority of countries, that the holding of assets easily convertible, as a rule, treasury bonds, government obligations, is as an obligatory way to provide liquidity for the financial resources.

Bank services Traditionally, commercial banks have developed their activity in three main fields: to attract deposits, to give loans, and to provide monetary transfer operations. In the second half of our century bank services have been diversified, on the one hand by implying in certain operations that have been once in charge of other banks and by providing new services for different countries with other financial operators. The extension of banking services has evidently followed the profit, but on the other hand, it has intended to support the clients, facilitating in this way their access to useful and wished services. During 1970s banks have initiated programs of business and marketing development including: − the estimation of the actual and future needs of clients − the supply of goods and services to meet these needs − the promotion and direction of goods and services to meet the businesses requirements. These measures have contributed to the development of a network of services. The first category of these new resources is represented by business services addressed to firms. To promote new financing methods, commercial banks have initiated for their customers leasing and factoring operations, or they have opened the access to the securities issue desk office. The biggest parts of bank services do not contribute to the increase of resources and do not affect bank assets but they also comprise risks and bring concomitantly certain profit. Banks highlights these operations and, in this way, they are grouped as extra-balancing operations. These operations are composed of two large categories. − Commission operations − Operations regarding anticipated or conditional obligations Within the framework of commission operations the bank acts in behalf of and for its clients. Among the most frequent operations of this kind, are those connected with making payments, especially, operations of commercial papers cashing. Also, banks provide operations of selling and buying securities for their clients. Operations regarding anticipated or conditional obligations. First of all, the bank’s anticipated obligations comprise giving credit through; − Credit-lines, when the obligation refers to the size of credit and not the conditions of giving credit; − renewing credit that can be made use of during the terms stated in the contract, advantages for which the bank is paid certain interest; A second group of bank’s anticipated obligations resorts from the Bill of Exchange circuit and it is known as credit by signature. The third group of investment activities involves operations with the same characteristics as those previous ones.

17 On the one hand, for the activities, which are not reflected in the balance sheet, the bank undertakes to act in the future and, and in this way, it undertakes the risk to bear expenses or losses. On the other hand, the bank cashes remuneration or it benefits from a modification of the standing order. Another category of services has developed in the sphere of international affairs; export cashing operations, financing the export through national institutions, credit granting for export, negotiating and discounting the foreign Bills of Exchange, facilitating the import through the documentary credit, operating in foreign currency accounts, engagement in currency options. Central banks have also developed services, which offer information services regarding credit, perform the evaluation of certain firms with the purpose to become partners in business relations. Thousands of bank clients have applied to personal services development. The services of personal accounts have been manifested, especially, through the accounts diversification: savings accounts, investments accounts etc. Also, banks offer diversified insurance programs, especially, life insurance, they inform their clients about making trips by using credit cards, traveler’s checks, currency exchange and even they organize their trip and insure the clients in this period.

9. BANKING BEHAVIOUR

The development of relationships between commercial banks and their clients in all the operations that these banks perform and in all the services that they offer, banks are exposed to certain behavior rules and they reveal their reciprocal obligations under their most concrete aspect. Thus, in the relationship with their clients, the banks have chartered certain rights. And they are the following: a) To set and record in accounts the interest and commissions owed by clients at reasonable levels, b) To indemnify all the expenses and resources held by clients c) To use the clients’ money accordingly for the purpose to ensure the cheques honoring drawn by clients, d) To cover at the clients’ request any sum that they deserve from the reciprocal relations. Banks also have certain obligations against their depositors: a) to carry out any solicited operation by their clients; b) to honor the checks drawn by the customers and to cash the checks and other normal banking instruments, received for their benefit; c) to issue periodically profit and loss statements or at the clients’ requests. d) Not to reveal the information referring to the clients’ affairs, except at their request or in the cases stipulated by Law. Bank risk – important decisional factor referring to banking operations In handling their resources, banks face a lot of risks: − the risk of capital loss or insolvency, − the risk of immobilization or lack of liquidity, − the risk of interest modification for mobilized resources, − the risk of capital depreciation through inflation, − the risk of capital repatriation in the conditions of external crediting. The risk of insolvency. The client manifests the risk of insolvency as a result of his non-fulfillment of the credit contract. It can lead to a definitive capital loss or it can suppose a partial and late recuperation by applying to the Court of Law. Insolvency damages bank interests. Global insolvency risk is a way of increasing the amount of given credit and interest rate, but on the other hand, the supply of credit is a function of risk decreasing. Insolvency risk increases as long as the volume of credit increases. Along with the growth of credit, insolvency cases grow in accelerated proportions, expressing the fact that the majority of credit proportions bring among debtors a bigger number of persons potentially insolvable. Contrary to this statement, credit restriction leads to the decrease of insolvency cases, because in these circumstances, first of all, the clients who have doubtful solvency are excluded from crediting. The growth of interest rate can lead to the increase of insolvency cases of the debtors’ banks. To prevent and avoid insolvency, measures at macro-economic level are constituted.

18 Thus, in every country the norms of the bank functioning promote the protection of depositors, the most important suppliers of banks, by imposing certain rules intended for providing a certain equilibrium position in the relationship with its clients. These norms are: − the obligation to have a minimum capital and − a certain rate to cover the risks expressed as a relation between its own gross funds and given credit, appreciated by their risk degree (about 8% according to some estimations) − a rate of risks division that limits, depending on the own funds of banks, credit dimensions, that can be given to one client, so that the failure of one client does not essentially damage the bank’s equilibrium. The risk degree is different; it depends on the client’s nature (economic agents or individuals), and the kind of credit. For enterprises, it is implicitly and necessarily important to know in details their conditions of functioning in order to prevent insolvency risks. The analysis of the debtor supposes a deep knowledge of the situation in the sphere of his activity; his development trend, conjuncture evolution and especially the main characteristics of the firm, its growth factors, the evolution and prospective of sale, the evolution of profit, working capital, balance, of its solvency and liquidity indices. Credit – scoring Credit – scoring is a criterion to appreciate and evaluate the attributes of the credit applicant based on a medium note or percentage. In this way it is necessary; − To establish a number of variables, which will include: the material situation of the credit applicant, the level of his income, stability at work and home, age, family requirements, behaviour in relations with banks and in the capacity of debtor. − To create an aggregate system that would allow the use of these variables in a common unit of global expression. In this way, the efficiency of the system is tightly connected with the most significant factors that can constitute this system’s variables and optimize the aggregation way. 10. THE CHARACTERISTICS OF COMMERCIAL BANKS OPERATIONS

The name of a commercial bank has often been associated with a term that defines its specifics. With this in view, banks can be divided into specialized and universal banks. − Universal banks – are those commercial banks that make all kinds of banking operations and do not restrict their activity to certain sectors only. − Specialized banks are those commercial banks that, except for their basic operations, develop prevalently operations of a certain type or in a certain field. There are some types of specialized commercial banks: − Land Bank – provides credit and other financial and payment facilities for land entities, for land, land equipment and the purchase of fertilizers. − Investment Bank – gives long and middle-term credit to enterprises, as a rule, for investments, obtaining its funds, on the basis of certain savings form for longer periods than those usual. − Security Bank – makes long-term loans with a security pledged on real estate possessed by debtors. − Import – Export Bank – gives credit for different terms to producers, local exporters in order to support them in their activity of the products promotion of the respective country on external markets, guarantees external credit, makes pay desk operations in behalf of importers and exporters. − International (private) Bank – a bank with numerous branches in other countries and for which external operations play an important role, a prevalent role but they do not operate for inter–governmental financial institutions whose capital resorts from two or more countries (except the World Bank). − Deposit Bank – operates mainly domestically by taking deposits and giving financial loans to private persons.

19 − Acceptance Banks – are banking institutions that support through their signature the credit instruments (bills of exchange, payment orders) drawn by the domestic exporters on foreign importers, and the credit instrument accepted in this way becomes negotiable. − Issuing Houses – are banking institutions that provide on the stock exchange market securities (shares, bonds).

11. CONCLUSION

The role of commercial banks in every banking system becomes more and more significant. Contemporary banks provide a whole assortment of banking products and services, which are placed at the clients’ disposal. Monetary means accumulations from people, economic agents and the state are used both for servicing the clients and making investments. Trust is an essential element in the process of intermediation. Banks offer guarantees their depositors so that they can withdraw their funds wherever they wish to. To background trust banks must adopt a prudential behaviour and a maximum rigour. In taking the decision of investing the funds they must carry out their businesses so that they do not undermine the trust of the depositors. In the process of intermediation banks perform two basic functions: - they accumulate resources - they ensure the mechanism of making payments. The amount of banks that operate in an economy forms the banking system, in whose structures are included: the Central bank, commercial or deposit banks, financial organizations, specialized credit institutions and banks. To insure the stability of the banks is an objective of the macroeconomic stabilization policy. As a result, the banking system is one of the best-regulated fields of the economy. It has certain specifics and is based on market mechanisms. In the actual conditions, in the countries with a consolidated market economy, the banking-financial system performs a range of new services. Modern banks coordinate with payments and collections in the whole market economy. They have the mission to ensure the necessary framework of additional money issue and its withdrawal. Banks deal with national money and they supervise its relationship with the currencies of other countries. The adequate promotion of the monetary policy facilitates the banking activity in the country. The banking network is an expression of the development of the social and economic level in every country.

20 12. GLOSSARY

Abolish (v) – to cancel (a anula/аннулировать)

Acceptancе house – an institution specializing in accepting or guaranteeing bills of exchange. The decline in the use of the bills of exchange has forced the accepting houses to widen their financial activities, many of them have returned to their original role as commercial banks. (bancă de accept/акцептный банк).

Account – an account maintained by a bank in which a depositor’s money is kept. An amount of money deposited with a bank. (cont bancar/банковский счет).

Account for – to represent, to explain, and to justify. (a reprezenta, a justifica/обьяснить).

Account holder – the person who has a deposit with the bank. (deţinător de cont/владелец счета).

Accounts payable/payables/debts – the amounts due to the suppliers of goods and services to an organization. (creanţe/счета к оплате).

Accounts receivable/receivables – the amounts owed to an organization for goods and services that it has supplied. (creanţe/счета к получению).

Accountant – a person whose profession is inspecting and auditing personal or commercial accounts. (contabil/бухгалтер).

Accounting – the theory and system of setting up, maintaining and auditing the books of a firm. (contabilitate/бухгалтерский учет).

Act as – to be in the capacity of. (a acţiona în calitate de/действовать в качестве).

Adequate – corresponding. (adecvat/адекватный).

Adherent – a party in the factoring contract that transfers for a period of time the right of all his short-time receivables resulted from selling goods or providing services to a bank specialized in factoring operations. (aderent/последователь).

Aggregation – a group or mass of distinct things gathered into, or considered as a total or whole. (agregare/агрегат).

Along with – together with, in addition to. (concomitent/совместно с)

Alternate with smth (v) – to occur regularly (two things occur each after other). (a alterna/случаться с).

Amalgamation – the combination of two or more companies. (combinare/соединение).

Annual accounts, report – the financial statements of an organization, generally published annually. (raport annual/годовой отчет).

Applicant – a person who applies for or requests something. (solicitant/претендет).

Assets – any object tangible or intangible, that is of value to its possessor. In most cases it is either cash or can be turned into cash; exceptions include prepayments, which may represent payments made for rent, rates or motor licenses, in cases in which the time paid for has not yet expired. Tangible assets include land and buildings, plant and machinery, fixtures and fittings; intangible assets include goodwill, patents, copyrights and trademarks. (active/активы).

21 ATM, cash dispenser – abbreviation for , a computerized machine usually attached to the outside wall of the Ştefan cel Mare Street bank that enables customers to withdraw cash from their current accounts, especially outside normal banking hours. (bancomat/банкомат).

Back up – to support, to help. (a sprigini/поддерживать).

Balance – the difference between the debit total and the credit total of an account. (balanţă, sold, echilibru/баланс).

Balance of payments – the accounts setting out a country’s transactions with the outside world. They are divided into various sub accounts, notably the current account and the capital account. The former includes the trade account, which records the balance of exports and imports (see balance of trade). Overall the accounts must always be in balance. (balanţă de plăţi/платежный баланс).

Balance of trade – the accounts setting out the results of a company trading position. It is a component of the balance of payments forming part of the current account. It includes both the visibles (i.e. imports and exports in physical mercendise) and the invisible balance (receipts and expenditure on such services as insurance, finance, freight and tourism). (balanţă comercială/торговый баланс).

Balance sheet – a tabular statement of both sides of a set of accounts in which the debit and credit balances add up as equal. (bilanţ commercial/балансовый отчет).

Bank capital – the amount of money the bankers dispose and that is given in the form of credit to the state or entrepreneurs. (capital bancar/банковский капитал).

Banking – the business carried on by a bank or a banker. (activitate bancară, bancar, sistem bancar/банковское дело).

Banque d’affaires – the French term for a «» or an “issuing house” as well as an investment bank.

Banque de France – The Central , which has approximately the same status as the Bank of England. Established in 1800 and nationalized in January 1946, it has some 214 branches.

Be reliant on – having or showing dependence.

Beneficiary – a person designed as the recipient of funds or other property under a trust, insurance policy. (beneficiar/получатель денег).

Big Bang – the upheaval on the London Stock Exchange when major changes in operation were introduced on 27 October 1986.

Bill of Exchange – a written authorization or order to pay a specified sum of money to a specified person. (cambie/вексель).

BIS (Bank for International Settlements) – an international bank originally established in 1930 as a financial institution to coordinate the payment of war reparations between European central banks. It was hoped that BIS, with headquarters in Basle, would develop into a European central bank but many of its functions were taken over by the International Monetary Fund after World War II. Since then the BIS has fulfilled several roles including acting as a trustee and agent for various international groups. The BIS also sets the capital adequacy ratios for banks in European countries.

Board of Directors- the administrative body of an organization. (consiliu de administraţie/совет директоров).

Broaden – become wider.

Bundesbank – the German Central Bank (literally, federal bank).

22 Capitalization – the act of providing capital for a company or other organization. (capitalizare/капитализация).

Cash and Carry – a wholesaler, especially of groceries, who sells to retailers and other with businesses at discounted prices without providing means of transport. (plăteşte şi cară).

Cashier – person who hands out cash in a bank. (casier/кассир).

Cashier’s desk operations – banking operations, or firm’s operations to receive and give out cash. (operaţii de casierie/кассовые операции).

Commercial papers – negotiable papers, as drafts, bills of exchange etc. given in the course of business. (efecte comerciale/коммерческие ценные бумаги).

Commission – the sum of money owed to the commissioner under a contract. (comision/коммиссионные).

Commissioner – a person authorized to do certain things by the principal he represents. (comisionar/специальный уполномоченный).

Contravene smth (v) – to oppose, to go against. (a contraveni/противоречить).

Countervailing – to furnish an equivalent of or a compensation for; to act against with equal power.

Cover / coverage – a sum of money transferred by a debtor to a creditor in order to cover an obligation. (acoperire/покрытие долгов).

Current account- an active account at a bank into which deposits can be paid and from which withdrawals can be made by . (see also checking account). (cont current/текущий счет).

Current assets – assets that form part of the circulating capital of a business and are turned over frequently in the course of trade. (active circulante/текущие активы).

Current liabilities – amounts due to the creditors of an organization that are due to be paid within 12 months. (passive circulante/текущие обязательства).

Deflation – a general fall in the price level, the opposite of inflation (deflaţie/дефляция)

Dimension (v) – to mark with specified measurements. (a dimensiona/придавать определенные размеры).

Disclosure – make known.

Discount – a deduction from the Bill of Exchange when it is purchased before its maturity date. (scont/учет векселей).

Discounting – the process of discounting a bill of exchange. (scontare/учет векселей).

Effect remittances – to send money as payments. (a remite/переводить деньги).

Emulate (v) – to try often by imitating or copying. (a imita/соревноваться, иммитировать).

Entity – a thing that has definite, individual existence outside or within the mind. (entitate/самостоятельная компания).

Face (v) – to meet or confront. (a confronta/встречать смело/столкнуться).

Factor – an agent as a banking or finance company engaged in financing the operations of certain companies, or in financing wholesale and retail sales, through the purchase of accounts receivable. (factor/агент).

23

Factoring – an agreement between the factor and adherent in which the adherent transfers to the factor a part of or all the receivables he has on debtors. (operatii de factoring/перепродажа права на взыскание долгов).

Fall due (v) – the maturity date, the time when the payment of the Bill of Exchange is to be made. (când soseşte timpul maturităţii/наступать о сроке платеже).

Forerunner – predecessor. (predcesor/предшественник).

Fulfill an order – execute an order. (a executa o comandă/осуществлять заказ).

Giro – a system by which a bank or post office can transfer money from one account to another.

Go-between – agent. (intermediary/посредник).

Gold-standard – a former monetary system in which a country’s currency unit was fixed in terms of a specific quantity of gold bullion/the basis for the measure of value in a given monetary system. (etalon de aur/золотой стандарт)

Governor – a person appointed to govern an organization or institution. (guvernator/заведущий).

Government bonds – an interest – bearing certificate issued by a government promising to pay the holder of a specified sum on a specific date. (bonuri guvernamentale/государственныe ценные бумаги).

Gross profit – difference in percentages between sales and cost of goods sold. (venit brut/валовая прибыль).

Hacker – a person who illicitly uses or changes information in a computer system.

Hassle – difficult and annoying to do/argument.

Hive of – a lot of activity.

Host of – multitude, a great number. (un numar mare de/большое количество)

Impediment – a bar to hinder the progress of. (piedică/препятствие).

Inflation – a persistent rise in the level of prices and wages throughout the economy. (inflaţie/инфляция).

Insolvency – the inability to pay one’s debts when they fall due. (insolvabilitate/неплатежеспособность).

Intermediation – the process of acting as an intermediary between a borrower and a lender or between a seeker and a provider of some other financial service. (intermediere/посредничество).

In terms of – regarding, concerning. (referitor la/в отношение).

In the long run – over a long period of time in the future.

Judicious – showing sound judgment. (judicious/разумный).

Lender of the last resort – a country’s central bank with responsibility for controlling its banking system.

Liberated – released, free. (liberal/свободный).

24 Liquidity – the extent to which an organization assets are liquid, enabling it to pay its debts when they fall due and also to move into new investment opportunities. (lichiditate/ликвидность).

Make smb redundant – be dismissed by the employer.

Marketable securities / commercial papers – a security (stock, share, bond) that can be bought or sold on a stock exchange (efecte comerciale/коммерческие ценные бумаги).

Merger – any combination of two or more business enterprises into a single enterprise.

Mobilization – the act of putting something in circulation (mobilizare/мобилизация).

Money availabilities – money that can be used. (disponibilităţi băneşti/денежные средства).

Non-marketable securities – government securities that cannot be bought or sold on a stock exchange. (efecte non-comerciale/нерыночные ценные бумаги).

Oats – grains of a cereal.

Obligation – 1. being obliged, 2. an agreement or duty by which one person (the obligor) is legally bound to make payment or perform services for the benefit of another (the obligee). (obligaţie, datorie/обязательства).

Obsolete – no longer in use or practice or out-of-date. (demodat/устарелый).

Outstanding – any uncollected or unpaid funds. (neachitat/неоплаченный).

Owe (v) – have the obligation to pay. (a fi dator cuiva/быть должным).

Placing or placement/ capital investment – the sale of shares by a company to a selected group or individuals to raise additional capital for a quoted company. (plasament/размещение капитала).

Pledged as – represented as security or guarantee for the repayment of a loan. (amanetat/предьявлять в залог).

Portfolio – a list of all the securities held for investment as by an individual, bank, and investment company. (portofoliu/портфель).

Prevalence – predomination, authority. (prevalenţă/господство).

Principal – a natural or legal person who entrusts a function or gives instructions to a commissioner. (comitent/агент).

Profit and loss account – an account in the books of an organization showing the profits or losses made on its business activities with the deduction of the appropriate expenses. (raport despre venituri şi cheltuieli/счет прибылей и убытков).

Public debt – the total debt of all government units, including those of the state and local governments. (datorie publică/государственный долг).

Record – anything that is written down and preserved as evidence. (înregistrare/запись).

Rediscounting – the discounting of a Bill of Exchange or promissory note that has already been discounted by someone else, usually by the bank. (rescont/переучет векселей).

Regulation – a rule, ordinance or law by which conduct is regulated. (reglementare/регламент).

Reimbursement – the process of repaying or compensating a person for expenses, damages, losses. (rambursare/возмещение).

25 Repatriation – sending back or returning to the country of birth. (repatriere/возвращение).

Reserve funds – the amount of demand deposits that although they are at the holders’ disposal, are kept at the bank in the form of permanent balance between deposits and loans. (fonduri de capital/резервные фонды).

Result in – terminate or end in a specified manner.

Retail banking – banking services offered to the general public and small enterprises. (bancă cu amănuntul/розничный банк).

Royalty – payment to an owner of land for the right to work minerals or to an inventor to use his inventions. (redevenţă, drept de autor/авторский гонорар).

Sale or marketing – the process of selling. (desfacere/сбыт).

Solvency – the financial state of a person or company that is able to pay all debts as they fall due. (solvabilitate/платежеспособность).

Standing – going on regularly, without change, permanent, lasting. (permanent/постоянный).

Substantial – very large in amount or degree.

Submit to (v) – to present for consideration. (a prezenta/предьявлять).

Tailored Loan – a loan suitable for a particular purpose and person.

Treasury bonds – any of various interest-bearing bonds issued by the Treasury Department usually maturing over a long period of time. (bonuri de trezorărie/долгосрочные казначейские обязательства).

Undergo (v) – to undertake, to experience or endure. (a suporta/испытывать).

With the aid of – by means of. (prin intermediul/с помощью).

Universal Banking – banks that involve not only services related to loans and savings but also those involved in making investments in companies. (activitate bancară universală/международное банковское деятельность).

Wholesale banking – Interbank lending as well as lending to or by other large financial institutions, pension funds and government agencies. (bancă en gros, pentru clienţi mari, companii, corporaţii, alte banci/банковское обслуживание корпораций).

Withdraw (v) – to take money back from a bank. (a retrage, a scoate bani/брать назад).

Working or circulating capital – the part of the capital of a company that is employed in its day-to- day trading operations. It consists of current assets less current liabilities. (capital circulant sau de rulaj/оборотный капитал).

26 13. TEST YOUR KNOWLEDGE

I. Answer the following questions:

1. How many banks operate in the banking system of the Republic of Moldova? 2. What services do commercial banks provide for their clients? 3. Do you know other banking systems? Name their characteristics. 4. What are the features of granting credit in the Republic of Moldova? 5. Specify the functions of the Central Bank? 6. Reveal recent data concerning the operations of commercial banks? 7. When did the first appear? 8. What were the premises of banks appearance? 9. Mention the reasons of the Central Bank differentiation from commercial banks? 10. Draw the diagram of the banking system structure in the Republic of Moldova.

II. Are the statements true or false?

1. A financial institution is recognized as a bank if it has a license. 2.The National Bank of Moldova is chartered by the Government. 3. The Central Bank grants credit to natural persons. 4. Specialized banks operate in a certain field. 5. Bank active operations include the operations of giving credit. 6. The Export-Import Bank provides credit for agricultural needs. 7. In any economy the commercial bank plays the role of a financial go-between. 8. In any state the Central Bank ensures the stability of currency. 9. Commercial banks deal with state treasury means. 10. The banking system operates as a complex of banking regulations.

III. Match the words with their definitions:

1. Portfolio, 2.Penalty, 3.Outstanding, 4.Subsidiary, 5.Statement of account, 6.Profit and loss account, 7.Mortgage a) any uncollected or unpaid funds (accounts receivable, notes payable) b) A company of which more than half the share capital is owed by another company. c) Group of loans or assets classified by type of borrower or asset under management. d) A final account drawn up at regular intervals that summarizes revenues and expenses. e) A sum of money collected as a punishment for failing to comply with the agreed procedures such as late payments, or exceeding overdrafts limits. f) A record of the financial transactions of a person or business debt instrument giving conditional ownership of an asset secured by the asset. g) Being financed. It involves real estate and it is a long-term debt (25-30 years).

IV. Choose the right statement. Put a tick.

1. In the Republic of Moldova commercial banks submit annual reports to: a) the Central Bank b) the Parliament 2. The charter of the Central Bank is issued by: a) the state b) the Government 3. The banking system of the Republic of Moldova is divided into: a) 2 levels b) 3 levels

27 4. Commercial banks provide: a) credit b) goods and services 5. The ownership of banks is: a) a joint-stock company b) Ltd. 6. The banking system represents: a) the amount of firms and enterprises b) the amount of banking institutions.

V. Case Study. Work in groups:

Considerations and procedure: The main objective of the bank is to make profit but, at the same time, it has to maintain its responsible image in the community. The borrower must pay at least 8% of the principal a year and the standard interest rates are 10% per year. The banker can lend either part or all of the loan request. The lending essentially bases on the evaluation of the credit risk, interest rate risk and concentrated risk.

Loan Applicant 1. The members of a farmers’ association grow wheat, sun-flower and oats. For over five years they have borrowed about $50,000 each year to plant their crops and have always repaid the bank at harvest time. Last year, because of floods, they lost almost all of their crops and were unable to repay their loan already owing the bank $70,000. However, they want to borrow $20,000 more.

Loan Applicant 2. Two young engineers have presently no job and as a result of being made redundant they were given social aid amounting $20,000, which they deposited at your bank. They are very clever and have been able to invent a very efficient vacuum cleaner. They would like to borrow $30,000 to start a business on their own. Note: Discuss the advantages and risks of providing loans for each case. What would you do if requested to meet their loan requirements?

VI. Give synonyms to the following words and word-combinations: At present, to contravene, with regard to, by and large, to submit to, to fall due, to hinder, impediment, to meet the needs, assumption, to mint, prevalence, emphasis, wholesale, obligation, debtor, aggregate, to emulate, to monitor.

VII. Prepare a short talk on one of the following topics:

1. Types of banking systems (USA, Germany etc.). 2. Essence and types of banking operations. 3. Contemporary banking services provided by commercial banks. 4. Types of credits given by commercial banks from RM. 5. Bank cards – essence and particularities. 6. The function of currency issue of the National Bank. 7. NBM – regulator of the banking system. 8. The organization of commercial banks operations in RM. 9. The functions and objectives of the NBM. 10. The administration bodies of commercial banks. 11. Banking legislation in RM. 12. The foundation of a commercial bank in RM.

28 13. The interlink between the Central Bank and commercial banks. 14. The procedures of opening an account in commercial banks. 15. The characteristics of the central banks operations. 16. The procedures of giving credits by the banking system of the RM. 17. The impact of the world economy on banking systems. 18. Types of commercial banks. 19. Customers’ duties and rights against banks. 20. Discounting of Bills of Exchange.

VIII. Case Study. Work in groups.

East Farming Co. is totally reliant on your bank for advice on all financial aspects of its activity. Your bank lent substantial sums to the company and always insisted on full repayment. The company’s present debt is $40,000 out of which it was able to repay $30,000 by now. It has recently applied for a new $60,000 loan needed for the autumn works. A third party security is required, as the farm stock has already been mortgaged. The guarantor is a limited company. − Will you grant the company the requested credit? − Will you arrange a meeting between the bank, debtor and guarantor? − What will you ask the guarantor to do? − What forms of security should the guarantor provide? − Will you finally grant the credit?

IX. Work in pairs. Explain the following banking terms:

Capitalization, accounts payable, accounts receivable, solvency, intermediation, capital placement, regulations, remittance, reimbursement, government bonds, mortgage, amalgamation, cash & carry, discount bank, gold standard, balance of payments, public debt, treasury bonds, deposits at sight, Tailored loan, merger, countervailing force, giro clearing, cautiously, mutual funds, Thrift Institution, to widen, usury law.

X. Work in groups. Comment on the following statements:

− A commercial bank is sometimes referred to as a “financial department store”. − “I should buy as many things as I can on credit because credit increases sales and helps business”. − “If things were sold for cash only, in the long run, prices would be lower and everyone would better off”. − “Credit should be used only in making expensive purchases, such as houses and cars, and never for everyday purchases, such as food or clothing”. − If the banking systems could function without the aid of central banks, why is it necessary, at present, to have central banks? In a market economy, can we rely on the market power and on the competition between banks, in order to determine the volume of money supply and credits? There are at least three arguments, in behalf of the necessity to have a central bank, in terms of regulating money supply and credits given in behalf of the government; can you state them? Think about the role of money. − Determine the characteristics, which you think, define the clients of a bank. − Which do you think are the advantages of competition between banks for their clients? − Is there any important difference between the stock of food and drink, purchased by a restaurant and bank deposits attracted by a bank? − Why do you think there should be an interbanking market?

XI. Role Play:

29

NATWEST is an important British bank. Ask and answer the questions necessary to complete the loan contract below. In groups of two, play the role of the potential client and the credit advisor. Here is some information, which the bank offers its customers. (Study the enclosure) − To apply for credit you must be aged 18 or over. − If you want to pay off outstanding bills, a fixed rate NatWest Personal loan could be the answer. − Should you want a loan of $5.000 or more, then the Tailored Loan may be for you. − Do you occasionally need more money then you have in your account, or need to go “into the red” without the hassle of penalty charges? − Flexible borrowing and a convenient way to pay for things make NatWest Credit Cards an attractive option. − If you want a loan designed for a special purpose (professional Training loan, a Post College loan), we’d like to help. Call our Helpine.

XII. Translate into Romanian or Russian:

The bank balance sheet highlights the link between its assets (what the bank owns) and liabilities (what the bank owns to individuals and legal entities, including its own shareholders). When grants a loan to a customer, it is said that the bank has a financial claim – a patrimonial right – against a borrower (until the loan is reimbursed). The claim is recorded in the loan agreement. Consequently, credits granted to customers are recorded as assets in the banks’ balance sheet. When a bank takes a deposit, the depositor has a claim over the bank regarding the repayment of this money. This is why bank deposits are recorded as liabilities in the bank’s balance sheet. Banks as Moldavian legal entities are allowed to operate only based on the authorization issued by the National Bank of Moldova, in compliance with the legal provisions in force. The National Bank of Moldova may withdraw the authorization granted to a Moldavian Bank or a subsidiary, to a subsidiary or branch of a foreign bank: upon the bank’s request, as a sanction. The organization and management of banks are established through their incorporation documents, according to the commercial legislation in force and in compliance with the banking law. In all its official documents, the bank may identify itself clearly through a minimum of data: the company under whose name the bank is registered in the Trade Register, its share capital, the address of its headquarter premises, number and date of incorporation in the Trade Register, number and date of incorporation in the Bank Registry. The administrators of the bank may be only individuals, in a number of maximum 11. The term of their mandate cannot be more than 4 years, with the possibility of being reelected. The National Bank of Moldova is headed by a Board of Directors. The executive management is exercised by the governor, the prime-vice governor and two vice governors. The Board of Directors consists of five members: − the Governor of the National of Moldova as the president; − the prime vice governor as vice president − seven members out of which two are also vice Governors of the National Bank of Moldova and five are not employed by the National Bank of Moldova. − The Board of Directors of the National Bank of Moldova decides according to the law, on: − monetary, foreign exchange, credit and payment policies and monitors their enforcement; − measures in the field of licensing and prudential supervision of the banks licensed by it; − internal organization, staff salaries and profits, etc.

30 Case Study: Problem No.1 An economic agent has deposited at the bank 130,000 lei for a period of five years with an annual interest rate of 18%. Count the rate of interest that will be paid by the bank at the end of each year.

Problem No.2 An economic agent will have to pay in two years $7000 at the bank. Determine what sum of money the economic agent borrowed initially from the bank provided that, for the whole period of time the bank will charge an annual average interest rate of 15%.

Problem No.3 The founders of the bank have prepared the set of documents to be submitted to the National Bank of Moldova in order to obtain the banking license. Determine what type of license will the National Bank issue for each case: − 55,000,000 lei − 170,000,000 lei − 109,000,000 lei. Problem No.4 A natural person makes a deposit at the bank of 120,000 lei with an annual interest rate of 18%. What will the total value of this deposit be in three years?

Study the cases below and determine if the measures taken by the bank clerk are in accordance with the code stipulations of banking behaviour and practice.

1.The father of a bank client wishes to withdraw from her account a sum of money, explaining that his daughter, the account holder is badly ill and cannot come on her own, by presenting his daughter’s savings card. The savings card does not have the authorization to be used by a third person. The bank officer knows this man and this family very well and moreover he knows that his daughter is ill, indeed. He authorizes money withdrawal and gives it to the father.

2. A bank client complains that the interest of his account has decreased the last six months, without being advised. The bank officer that is in charge of studying the claims checks this fact and states that an advising letter regarding the change in the interest rate has been sent in time. The client says that he did not receive the notification and states that if he had received it he should have moved his account to another bank that practices a higher rate of interest. He announces the bank officer that he wants to liquidate his account and insists that the interest for those six months be paid at the highest level. The bank officer tells him that this thing is not possible, but the client insists becoming more and more nervous. In this situation, the bank clerk asks him to take place and he goes to find the director, explaining in advance, the client, where he goes.

Do the following assignments

Identify, among the statements below, the functions of a central bank. a) Lender of the last resort; b) To issue currency; c) Provides currency exchange operations; d) Opens savings accounts for people; e) Provides authorizations of functioning for commercial banks; f) Offers insurance services of money remittance for industry and commerce.

The term “central bank independence” refers to: a) The situation in which the central bank is private;

31 b) The guarantee of setting the monetary and credit policy by the central bank; c) The legal monopoly of currency issue. If the level of the national income increases by 2% yearly and the bank currency issue increases by 2% too, the other situations remaining the same, we are expecting the following changes: − the inflation rate will grow; − the inflation rate will go down; − the inflation rate will not change.

Decide which of the proposed answers are true:

1. The central bank requests the commercial banks to keep reserves, in the form of deposits, at the central bank in order to: a) be able to lend money to the government; b) have a means to control the money supply and credits in the economy; c) be able to give commercial credits to big companies.

2. The central bank manages the country’s currency reserves, which are constituted from: a) the currency of foreign countries, members of the IMF; b) gold and convertible currencies; c) only of gold.

3. The central bank is the creditor of the last resort for: a) the banks that look for capital to develop; b) the banks that temporary, do not have sufficient liquid funds; c) enterprises of national importance.

4. the clients’ deposits form the assets of a bank; 5. the clients’ loans form the liabilities of a bank; 6. the deposits of a bank, with the National Bank, form the liabilities of a bank; 7. the deposits provided on the interbanking market form the assets of a bank.

32 Translate the following information from Romanian into English: Instituţiile bancare din Republica Moldova 1991-2003

Nr. Denumirea băncii Tipul de capital Anul acordării/reorganizării/retragerii autorizaţiei 1 2 3 4 Lista instituţiilor bancare ce îşi desfăşoară activitatea financiară la 31.12.2003 1. „Banca de Economii” S.A. Mixt naţional: 1.11.1940-organizată sub forma caselor de economii; stat/ privat 1987- reorganizată în Banca de Economii Republicană a URSS; 1992- reorganizată în Banca de Economii a Moldovei, BCA 2. Banca Comercială „Moldova Mixt: naţional/ străin 1987-organizată ca Banca Agroindustrială Republicană Agroindbank” S.A. a URSS. 8.05.1991-reorganizată în B.C „Moldova Agroindbank” S.A. 3. Banca Comercială pentru Mixt: naţional/ străin 01.07.1959-organizată ca Banca Republicană a Băncii Industrie şi Construcţii de Construcţii a URSS; „Moldindconbank” S.A. 1987-reorganizată în Bancă Republicană a Băncii Industriale şi de Construcţii a URSS; 25.10.1991-reorganizată în Banca de Industrie şi Construcţie S.A. 4. Banca Comercială „Export- Străin 1987-reorganizată în Banca de Comerţ Exterior a Import” S.A URSS în Banca de Relaţii Comerciale Externe a URSS; 10.01.1994-reorganizată în BCA „Export Import” 29.04.1994-autorizată de BNM (forma juridică SRL) 15.08.1996-reorganizată din SRL în SA de tip închis 5. Banca Comercială Mixt: 22.02.1990-autorizată „Victoriabank” S.A. naţional/ străin

1 2 3 4 6. Banca Comercială Mixt: naţional/ străin 04.06.1990-autorizată „Mobiasbanca” S.A. 7. Banca Comercială „Comerţbank” Mixt:naţional/ străin 14.11.1990-fondată cu denumirea de „Moldtorgbank” S.A. 06.09.1991-autorizată cu denumirea de B.C „Comerţbank” S.A. 8. Banca Comercială „Banca Mixt: naţional/ străin 1987-organizată ca Banca Socială şi a Fondului Locativ Socială” S.A. Republicană a URSS; 1991-reorganizată în Banca Socială BCA; 9. Banca Comercială Mixt: naţional/ străin 08.08.1994-autorizată „Investprivatbank” S.A. 10. Banca Comercială Mixt: naţional/ străin 10.11.1994-autorizată „Universalbank” S.A. 11. Banca Comercială Mixt: naţional/străin Septembrie 2002-autorizată cu denumirea de B.C. „EuroCreditBank” S.A. „EuroCreditBank” S.A. (denumirea anterioară fiind de Petrolbank) 12. Banca Comercială „Energbank” Mixt: naţional/ străin 1997 autorizată S.A. 13. Banca Comercială Mixt: naţional/ străin 1997 autorizată „Businessbanca” S.A. 14. „Banca Comercială Română” Străin 22.10.1998 autorizată S.A. Sucursala Chişinău 15. Banca Comercială „Unibank” Străin 19.01.1993 autorizată S.A 16. „Banca de Finanţe şi Comerţ” Mixt: naţional/ străin 01.07.1993 autorizată S.A.

33 Informaţii generale despre solicitant Punctaj Nr. Criteriul Specificaţie Propus Selectat 1.1 Istoria de membru Peste 3 ani 4 De la 2 până la 3 ani 3 De la 1 până la 2 ani 2 Până la 1 an 1 Membru nou 0 1.2 Studii Superioare 4 Superioare incomplete 3 Medii şi cursuri de lungă durată 2,5 Medii liceale 2 Medii gimnaziale 1 1.3 Pregătirea profesională Economist 5 Agronom/zootehnic/viticultor 4 Inginer-mecanic 3 Profesor/medic 3 Meseriaş specialist 2 alte 1 1.4 Situaţia familială Căsătorit (ă) 3 Celibatar (ă) 2 Văduv (ă) 1 Divirţat (ă) 0 1.5 Persoane în întreţinere 0 persoane 3 1 persoană 2 2 persoane 1 3 sau mai multe persoane 0 1.6 Telefon Da 2 nu 0 1.7 Referinţe bancare Existenţa unui cont curent, de depozit 2 Credite anterioare 1 Nici una 0 Total I: P

Capacitatea de plată Punctaj Punctaj Nr.d/o Criteriul Specificaţie Propus selectat 2.1 Venituri lunare Peste 1500 10 nete lei 901 până la 1500 8 701 până la 900 6 501 până la 700 4 300 până la 500 2 până la 300 0 2.2 Suma plăţilor credit Sub 30 10 inclusiv dobânda 31-35 8 lunar Venituri 36-40 6 lunare nete % 41-50 4 51-60 2 peste 61 0 2.3 Raporturi Credite fără restanţe 5 anterioare decredit Credite cu întârzieri la plata 4 cu asociaţia banca dobânzii 3 Credite cu întârzieri la 3 rambursare 0 Credite restatnte Nu a avut 2.4 Depuneri de Sunt depuse 5 economii în Nu sunt depuse 0 asociaţie Total II: P

34 Evaluarea riscului la acordarea creditului a persoanelor fizice (credite de consum)

Solicitantul de împrumut ______numele, prenumele

1. Mărimea creditului solicitat ______2. Scopul creditului ______3. Durata creditului ______4. Rezultatele evaluării cererii de credit: ______

Factorii evaluaţi

Nr. Criteriul Apreciere, punctaj 1. Informaţii generale despre solicitant 2. Capacitate de plată 3. Proprietate privată 4. Asigurarea creditului Total:

Clasificarea solicitantului în una din categoriile de risc

Riscul Posibilitatea Tipul de Cat. Semnificaţie total, de a acorda risc puncte credit, lei A Risc Performanţe prezente şi 80 şi mai Peste 10000 neesenţial viitoare foarte bune care mult asigură achitarea la scadenţă a creditului. B Risc Performanţe prezente 51-80 5001-10000 vizibil foarte bune şi bune dar cu un grad de incertitudine minimă pentru o perspec- tivă mai îndelungată. C Risc Performanţe 25-50 1501-1500 substanţia satisfăcătoare, cu o l evidentă tendinţă de înrăutăţire în viitor. D Risc Performanţe scăzute 11-25 501-1500 esenţial caracterizate printr-o stare de ciclicitate la intervale scurte de timp. E Risc Performanţe slabe care Până la 10 Până la 500 inaccepta prefigurează o stare de bil instabilitate a solicitantului.

Concluzie: Solicitantul de împrumut a acumulat ____ puncte fiind clasificat în categoria de risc ____

35 Concluzii privind luarea deciziei de acordare a creditului

5. Sursele de achitare a creditului: ______6. Gajul şi evaluarea lui: ______7. Propuneri şi concluzii privind evaluarea cererii de credit ______(data) (semnătura Executorului)

36 14. BIBLIOGRAPHY

1. Angelescu C., Apostol G., Economia politică. Editura Economică, 1995. 2. Aprecierea fiabilităţii băncii comerciale. Economica, 1999, N2, pag.69. 3. Bantaş A. Dicţionar Englez – Român, Român – Englez. Ştiinţa. Chişinău, 1994. 4. Basno C., Circulaţia bănească şi creditul. Bucureşti, 1979. 5. Basno C., Monedă, credit, bănci. Editura didactică şi pedagogică. R.A. Bucureşti, 1994. 6. Basno C., Operaţiuni bancare. Bucureşti, 1996. 7. Buletin statistic de informare publică. N1, februarie 2001, pag.8,9. 8. Casian A. Banca comercială ca întreprindere financiară. Chişinău, 1999. 9. Cerna S., Sistemul monetar şi politica monetară. Bucureşti, Editura enciclopedică, 1996. 10. Cobzari L., Competitivitatea băncilor comerciale şi metodele aprecierii ei. Chişinău, 1996. 11. Collins, Essential English Dictionary. London and Glasgow, 1988. 12. Dedu V., Gestiune bancară. R.A. Bucureşti. 13. Dobrotă N. Economie politică. Editura Economică, 1997. 14. Daughtrey, Ristau … , Introduction to Business. South-Western Publishing Co. England, 1992. 15. Жданова И., English – Russian Economic Dictionary. Moсква. “Rусский язык”, 1995. 16. Gestionarea suficienţei şi lichidităţii activelor băncilor comerciale. Economica, 1999, N2, pag.58. 17. Giacobbi M., Gronier A, M, Monnaie, Monnaies. Le Monde, 1998. 18. Guralnic D. Dictionary of American English. Cleveland and New York. USA, 1988. 19. Hoye B., Lucian Dr., Băncile şi operaţiunile bancare. Editura Economică, 1996. 20. Managementul financiar în băncile comerciale. Economica, 1999, N4, pag.68. 21. Milea C., English for Banking. All Educational. Bucureşti, 2002. 22. Reformele economice în Republica Moldova şi Romînia, Realizări, tendinţe, probleme. ASEM, Chişinău, 1998, Vol I. 23. Revista „Observator Economic”, N10, (23) octombrie 2000. 24. Revista “Observator Economic”, N12, (25) decembrie 2000. 25. Revista “Observator Economic”, N10, (25) octombrie 2001. 26. Simpozion ştiinţific internaţional “Strategii şi modalităţi de intensificare a colaborării dintre Moldova şi România în condiţiile extinderii Uniunii Europene spre est”. ASEM, 28-29 septembrie 2000, Vol. I. 27. Tendinţe în economia Moldovei, Buletin trimestrial, august, 1999. 28. “Un cuvânt în spriginul băncilor mici”. Profit. N1,2, 1999, pag.25.

37 15. ENCLOSURES

38

39

40

Sub redacţia autorilor Tehnoredactare computerizată – Tatiana Boico Procesare computerizată – Feofan Belicov

Semnat pentru tipar 15.06.05 Format 60 × 84 1/16. Rotaprint. Coli editoriale 3.6 Coli de tipar 4,7. Tirajul 100 ex. Comanda

Tipografia Departamentului Editorial-Poligrafic al A.S.E.M. Str. Mitropolit Bănulescu-Bodoni 59, Tel: 22-27-68

41

Top View