Romanian Commercial Bank and The Financial System în România

In order to identify the banks role it is necessary to locate them within the financial system, as being the main part of it.

But what is the financial system?

1.1.The financial system

The financial system - is defined as the totality of economic relations expressed in a financial form that appear between the participante in tbe process of formation, distribution and utilization of financial funds, during the entire social-economic activity. The financial system interacts with the monetary system and fiscal system.

These participants among whom are established these economic relations are:the state, the legal persons (companies) and the individuals. In this way are formed 2 subsystems that depend on one another: public subsystems and private subsystems.

Private enterprises and individuals(private sector) pay lot of taxes to the state budget, local budgets or contributions to the state social insurrance budget, amounts paid towards companies which offer the insurrance of goods, persons and civil responsability.

The state (public sector) sustains the private sector by giving subventions from the state budget of social insurrances in order to give financial assistance for various actions (for enterprises) or for pensionns, financial support for people in need (in the case of individuals) and also financial compensations which they get from the insurrance companies.

The most important part of the financial system is the Banking System (Central Bank, the other banks from the system and other specialize loan institutions, followed by nonbanking financial institutions, financial markets and the other structures which regulates and supervize the financial field.

The financial system is a means to finance economy.

The major objective of a financial system is that of ensurring long term economic growth by an efficient distributions of the resources.

On financial plan there are at the level of economy, 2 categories of participants whose preocupations are complementary, respectively those who have financing needs and who want to get resources and those who have financing capacities and who want an efficient placement of their resources.

In Romania there are 3 financing possibities:

o the possibility of financing from self resources which is also known as self-financing;

o direct financing or on capital market;

o indirect financing or that of economy in debt.

Self-financing - represents the way in which the companies fill their necessary needs with their own resources, collected as a plus (excedent).

Direct financing supposes that the entities which have a deficit, get their financial resources from those who have available capital, by issuing financial titles on primary capital markets. It is named direct financing, because between the participants at this economic relation, no mediator is involved.

Indirect financing supposes to find resources from financial institutions and institutional investors. In the case if this investment type we can notice the existence of some mediators which develop their activity between the debitor and the creditor.

I will focuse on this financing type.

1.2. Financial intermediation and financial intermediaries

Starting with indirect financing, have become more and more used the concepts of financial intermediation and financial intermediaries.

Financial intermediation - is the process which has to do with the attraction of economic resources and with their distribution at those economic agents who need them. This has a key role in saving-investing process.

Financial intermediaries - are those economic agents who have as basic activities, the offering of loans and financial placement operations. These are divided in two categories:

a) monetary intermediaries or banking intermediaries ( respectively comercial banks and the issuing bank) who has the power to creat coin.

b) non-banking financial mediators, mainly those structures which are specialized in collecting the savings - the savings institutions, pension funds, insurrance companies, but which don't have the power to create coin.

The banks are the main financial intermediaries. These and also other financial institutions act as intermediary, attracting deposits from those who have a currency plus and put these funds at the disposal of those who have a lack of currency disponibilities. Thus,it is created a mutual bond between those who ask for loans and those who give them.

1.3. Commercial Banks

The commercial banks are those that make all the types of banking operations. However, to make deposits and to give loans represent their basic operations. Lately it has been noticed a trend to universalize the commercial banks in the sense that these institutions make all those banking operations that are allowed by law and ndon't border their activity only at certain departments (in our country, banking companies are, by law, universal banks).

The commercial banks have 3 basic functions:

 to attract the available sources of the clients ( individual clients and companies) as deposits;

 to allow the clients to withdraw their money or to trsnsfer it in other accounts;

 to give loans to those clients who ask for credits by using the attracted funds ( funds placement).

Banks change the short-term savings in medium and long-term loans.

SAVERS

Commercial firms that borrow Private persons who borrow

BANK

Liquidity to finance production

Liquidity to finance consumption

Intermediation between savers and investors (those who offer loans and those who borrow)

Investment

Production

Consumption

Creation of jobs

Welfare creation

Figure 1.The role of the Bank in economy

The economic analysis considers that financial mediation has the following advantages which are specific for banks:

a) the reduction of transactions'costs;

b) the reduction of information asimmetry -offers all the necessary information to the debitors and it gets at its turn, many confidential pieces of information from the clients;

c)the insurrance of economy cash flow. Banking financial intermediaries change financial assets into active flows, encouraging their clients'preferrences for cash flows. Those who have financial assets, value titles (trade effects) can offer them to the banks as aquisitions and getting cash flows in exchange,with the condition to pay an interest called “scount”.