Credit Institution- Definition, Types, Classification of Credit Institutions, and More
Credit Institution – Definition
A credit institution is a financial company is to carries out banking transactions, with these banking activities being the most common. Credit operations, payment banking, and the receipt of funds from the public. There are also other operations that credit institutions can carry out, such as foreign exchange transactions, advice in the areas of financial and asset management, or even insurance intermediation, provided that they remain a side activity.
Branches of credit institutions established in participating Member States located outside participating Member States are not subject to reserve requirements. This includes components of credit institutions which have neither their head office nor their main launch in a participating Member State. All branches of credit institutions established in the participating Member State offering wholesale or retail cash services
Credit Institution – Types
Banks, financial companies, municipal credit unions, mutual or cooperative banks, and specialized financial institutions have different credit institutions. The banking law of January 24, 1984, regulates the activity of credit institutions
In France, there are now several types of credit institutions. Indeed, there are banks, financial companies, mutual banks, municipal credit unions, cooperatives and specialized financial institutions. From a legal point of view, it is the banking law of January 24, 1984, which regulates the activity of these various credit institutions.
To carry out banking activities such as those declared above (granting credits and collecting repayable funds from the public), it will first be necessary to submit an application for approval as a credit institution to a body called the Authority of prudential supervision and resolution (ACPR) which will then notify this request to the European Central Bank (ECB). This process will determine whether or not it is possible to have the status of a credit institution and thus to carry out various banking activities.
This regulation shows that credit institutions are classified into two categories: banking institutions and financial institutions.
Credit Institution – Classification
The law does not define the banking establishment. It corresponds to the old “bank” defined by the 1990 and 1992 agreements. It is, therefore, the typical law credit institution. The banking establishment comprises two sub-categories: universal and specialized banks. Banking institutions must have a minimum share capital set at 10,000,000,000 CFA francs (ten billion CFA francs).
The universal bank
Following Article 9 of the 2009 Regulations above, the universal bank is a banking institution generally authorized to receive any funds from the public to carry out all banking operations without restriction and all related processes and non-banking operations. More specifically, its purpose is to receive demand and term fund deposits from the public and carry out credit transactions. There is, therefore, in principle, no limitation in its activities.
One of the universal bank’s particularities is the limitation of the possibility of taking stakes in companies. However, this limitation does not apply to holdings taken in other banks and financial establishments or the companies necessary for its operation and responsible for managing its real estate assets or research services relating to the banking profession.
Following Article 10 of the Regulation, these are banking establishments whose activity is necessarily limited either concerning certain specific operations (long-term credit, equity investments), a clientele. Because of this limitation, they can benefit from special status. This is the case of the Banque Camerounaise des PME created by the State of Cameroon. It is intended mainly for the financing of Cameroonian SMEs.
They are generally empowered to receive any funds from the public but are distinguished by the specific or restrictive nature of their field of activity. They carry out banking operations within the limit of the approval decision that concerns them or the statutory, legislative and regulatory provisions specific to them in compliance, however, with the typical requirements of banking regulations.
Analysis Financial Institutions
Financial institutions play an essential role within each country’s financial system and are very important for the economies continuously developing. These establishments provide for the long-term capital needs of major industries.
As financial institutions also play a crucial role for most citizens by enabling them to carry out all their transactions . And meet their savings and investment needs, the government considers it imperative to supervise and regulate banks and other services. For the same reason, the potential bankruptcy of a financial institution can generate great panic within the economy. Organizations such as the US-based Federal Deposit Insurance Corporation (FDIC) monitor regular deposit accounts to protect individuals and businesses . From various risks when depositing their funds with financial institutions. Moreover, the loss of confidence in financial institutions can generate additional negative externalities within the economy.
A credit institution corresponds to a legal entity or a financial company that, as its main activity, carries out banking operations . Such as granting loans to other institutions. However, a credit institution receives funds from the public in its activities and carries out credit operations. It also has the function of carrying out banking payment services such as customer provision operations or payment management.
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