Banks can be financed in many ways, first of all, in the initial stage the shareholders have to finance a fixed capital forced by law. This deposit will be part of the social capital, and the financing its excluded of interests rates that should be paid to the shareholders.

After the initial phase, when the bank comes into operation it will be necessary to make a new refinance either internally or externally, will depend. When talking about Internally form, the bank can make an increase of capital unanimously with all the shareholders. Once again this kind of finance does not indebted the bank with anybody else, however sometimes it can be inadequate and poor to develop big operations. Many banks use their own resources to finance, for example reinvesting profits instead of paying earnings per share. There is an alternative manner that is used by the biggest international banks, we are talking about the outside finance.

Banks can get into debt, and after a period of time, give back de money. By this way the bank will be able to make more operations and increase their profit. But this method has some disadvantages. For instance, together with the finance, the bank will have to pay interest rates that sometimes are very high. We can divide this finance in long and short term. Long term financing, needs to be paid afer the first year, whereas short term debts are to be paid during the first year.
In the first case the bank assumes that the interests are higher than the short term finance case, normally because it will receive a big amount of money to buy fixed assets, make investments, etc.

No mark given.

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-ShareAlike 3.0 License