Master of economics,

Tulegenov Adlet Kalymkaidarovich

THE CONCEPT OF «BANK» AND AN OVERVIEW OF BANKING SYSTEMS OF THE REPUBLIC OF KAZAKHSTAN AND FOREIGN COUNTRIES

Banks and their clients are considered to be the subjects of banking operations. A banking system consists of associations of various types of banking institutions and banks and their interrelationships, which exist in a country at a given historical period.

For the purposes of addressing strategic and current tasks the following banking systems are applied: systems for regulating balance of payments; systems for regulating inflation; systems for securing economic growth.

Current banking systems comprise a complex multi-tier structure. Based on the nature of services provided by banking institutions to their clients, three elements of a banking system can be identified:

1) Specialized financial institutions

2) Central bank

3) Commercial banks

Before outlining the banking systems of Kazakhstan and the rest of the world from a legal standpoint, it is our understanding that the concept of «bank» needs to be defined. In this context, it is necessary to define what the legal subject or the institution referred to as a bank represents, what its legal status is, what its competence covers and how its participation in the economic turnover manifests itself. Moreover, it is advisable that the cases for forming a bank whose types of activities hold no legal forms other than those of a bank are defined.

Various concepts have been developed in economic and juridical literature as to the issue of the nature of the bank. In some cases the bank is viewed as an organization or an institution serving to manage the economy of a state. Such view of the nature of the bank is specific to the period of state monopoly on banking, when the State Bank was regarded as an element of the state machinery of control and administration, which served the purposes of supervision. In other cases the bank is viewed as an organization, specifically as a capitalist organization, which precludes from recognizing the economic nature of the bank. Based on one of the various bank operations, other authors have defined the bank as a trade organization, an intermediary organization or as a credit organization.

M. Agarkov objectively noted the absence of any complete definition of the bank. «In both legal and economic sciences the bank is mostly characterized as an organization acting as an intermediary in credit» [1]. According to A. Khudyakov, banks are presently considered an essential part of market economy, its attribute [2].

Present-day banks are regarded as one of the oldest and most common group of credit organizations and deliver the majority of credit and financial services. In essence, they are regarded as all-purpose institutions performing such banking operations as securing accumulated funds for loans on the terms of interest payment, repayment and maturity, raising funds on current (settlement) accounts and on time deposits, as well as settlement services.

It can be seen that the current notion of banks is based on the banks’ connection to credit and settlement relations. In fact, it is based on those connections that such a unique formation as the bank originates. The organization of financial and credit operations and the issuing of currency notes can be accepted as the key component of the essence of the bank, as its foundation.

As noted by E. Osipov, in research of the system of credit relationships, monetary circulation and the financial system of states, the concepts of «credit activity», «credit system» and «credit organization» are used, which is considerably more appropriate and correct taking into account the nature of the question and juridicial techniques. Yet, considering the diversity of banking activity, which is not found particularly in credit intermediation, the use of the concepts of «credit and settlement system», «credit and settlement organization» and «credit and settlement activity» would be preferable. According to the author, it is from these positions that the banks and other organizations performing such activities as credit granting and intermediation in settlement should be viewed. Credit and settlement activity should be viewed as commercial intermediary activity in execution of settlements and securing of monetary credit [3].

The following definition of the bank is documented in the current laws and regulations of the Republic of Kazakhstan. In accordance with the Article 1 of the Law of the Republic of Kazakhstan «On banks and banking activity» a bank is defined as a legal entity which is a commercial organization, entitled to perform banking activities in accordance with this Law [4].

The official status of a bank is determined by incorporation in the capacity of a bank by the Ministry of Justice of the Republic of Kazakhstan and the presence of a license for banking operations of the National Bank of the Republic of Kazakhstan.

No legal entity that does not have the official status of the bank may be called a «bank» or describe itself as an entity engaged in banking activities.

From the legal definition of the commercial bank the following aspects may be highlighted:

a) a bank is regarded as a commercial legal entity, i.e. an organization whose activity is aimed at profit-making;

b) a bank is formed as a joint-stock company, other legal forms of organization are prohibited (for entities engaging in single types of banking operations, the Law provides a requirement, according to which they must be formed exclusively as legal entities; the banking legislation does not allow for banking activity in the capacity of an individual entrepreneur);

c) a bank is regarded as a credit organization, i.e. an organization formed for performing banking operations;

d) a bank operates only if it possesses a license granted by the National Bank of Kazakhstan;

e) a bank possesses specific competence, i.e. it gains profit exclusively by performing the determined operations;

f) the legislature views a bank as part of the banking system.

It is indisputable that the functions of banks are have an economic nature and are incident to banks as financial intermediaries in the financial services market. The key functions of banks in every country include the following:

1) the formation of and the financial settlement for the state’s payment system;

2) the activation and allocation of available funds on its own behalf and on its account on the terms of maturity, repayment and interest payment in the form of crediting the state, the individuals and legal entities;

3) the provision of advisory services for financial and economic matters through the collection, research and distribution of relevant information;

4) the issuing of currency in deposit and currency note forms;

5) acting as a professional participant of the stock market through the placement and emission of securities.

To sum up what is stated above, it may be said that the concept of «bank» is collectively based on three main elements, which include the following banking operations: credit granting, deposit taking and accounts management. The present concept is formulated on the basis of the definition of credit organizations in pan-European banking law, albeit broader in terms of constitutive parts. A non-banking credit organization and a bank in practice differ in the range of performed operations: while a non-banking credit organization may perform only single banking operations, all possible sets of which are established by the National Bank of Kazakhstan, a bank has the right in principle to perform all banking operations, which constitutes the essence of its activity. Therefore, it can be concluded the term of «credit organization» covers the term of « bank», along with the term of «non-banking credit organization», which together form the collective definition.

The interweaving of the functions of various types of credit institutions and the popularity of the multi-purpose bank type create obstacles for defining the concepts of «banking activity» and «bank». Typically, the key feature of banking activity is the granting of credits and deposit taking in a professional capacity. Such practice is common in the banking legislation of Greece, Luxembourg, Belgium, Italy and other countries. In some countries (France, Germany), the term «credit institution» or «bank» is associated with a much wider range of services and is not limited to credit granting and deposit taking. In some countries such as Great Britain, the function of deposit taking alone is sufficient for labelling an organization as a credit institution. This allows for equating certain types of specialized institutions to banks.

The legal status of a bank may be discovered and understood by studying the essence of the bank as a participant of the banking system. This is because the legal meaning of the bank is formed not only and not so much by the fact that it is considered a commercial legal entity handling finances. The actual status of a bank may be defined by determining the level of its inclusion in the banking system of Kazakhstan or even the world’s banking system. This may be assessed by investigating the bank’s participation in the original sphere of commercial activity – banking.

In actuality, the inclusion of a bank in the banking system is seen as one of the main factors in interactions between clients and banks. This is due to the fact that clients open accounts not so much for thus storing their money, but for the purpose of having the capacity to make payments to an unlimited number of receivers both within the country and abroad. Moreover, from the bank’s perspective, it is essential to qualify who is introduced into the banking system and on what conditions; naturally, the question of their relationships arises.

In international practice, two models of banking systems can be conventionally recognized as the decentralized model and the rigidly centralized model. On top of it, segmented and multi-purpose banking systems were formed during historical development. The segmented system implies rigid legislative sorting of spheres of the operations and functions of independent types of financial institutions (Japan, USA). In the universal (multi-purpose) system, there are no legislative restrictions on comparatively independent types of operations and spheres of financial support.

All credit and financial institutions can perform various types of transactions and provide a complete range of services to their clients. In banking sector activity, a high level of self-supervision of financial institutions and their rigid adherence to traditions and practices developed by the banking community are very important (England).

A. Sagdiyev and K. Sadvakasov note that in developed countries, two types of monetary systems have been developed: the first type is called Anglo-Saxon (USA, England) and the second type is called continental (Germany, France, Japan and other European countries). In countries with the Anglo-Saxon banking system type with a high level of organization of stock market, the functioning of commercial banks is strictly limited . The universal type of banking activity is present in countries with the continental model of banking system, that is, investment services and operations and commercial services and operations are performed simultaneously with the state’s participation and a ctive control in the banks’ functioning. It appears that the choice of the model of banking system should not be limited to the Anglo-Saxon and the continental legal systems; therefore, we will rely on accepting the existence of two main types of banking systems – the «universal» (decentralized) system and the «segmented» (centralized) system.

Moreover, banking systems are typically regarded as two-tier systems. The first (the lower) tier consists of commercial banks and other credit organizations along with their branches. The second (the higher) tier is composed of banking centres, which are formed differently in various countries. The description of banking systems serves the following purposes:

1) to understand the structural specifics of banking activity and its funding base and to define the specifics of the funding base;

2) to identify the concordance between the parts constituting the banking system while taking into account the fact that the concordance may vary from factual and legal standpoints;

3) to provide a realistic overview of the level of development of banking in various countries while taking into account the fact that a certain number of various banking systems have been established in modern economics, each one of which has its own specifics and develops the mechanisms of coordination with other systems within the framework of international economy.

References:

1. Agarkov, M. Banking law; The doctrine of securities. Lecture course; Research study - М.: BECK, 1994. – p.350.

2. Sadvakasov, K., Sagdiyev, A. Banks' long-term investments. Analysis. Structure. Practice – М.: «Os-89» publishing company, 1998. – p.112.

3. Osipov, E. The specifics of the legal status of subjects of credit and settlement relationships// Subjects of civil law / / Managing editor Suleymenov, M.- Almaty: Private law research institute of KazHLU, 2004 - pp.508-511.

4. The Law of the Republic of Kazakhstan «On banks and banking activity in the Republic of Kazakhstan» dated 31.08.1995 (amended as of 15.01.2013г.) // www.online.zakon.kz