When talking about interbank deposits, reference is made to those deposits that are made where one bank makes a provision to another. It is a type of contract where a consumer makes an investment in a financial organization of a certain volume of money for safekeeping.
What is interbank deposit?
As could be observed briefly in the introduction of the article, an interbank deposit is a deposit model in which a certain bank entity carries out a service to another bank. The interbank deposit is a contract in which a user makes an investment in the financial organization with a certain volume of money, all this for the purpose of the organization, but clearly receiving some type of interest.
Therefore, when the user offers the loan, it also becomes a type of bank. The alternatives that exist to carry out the deposit in a certain period of time (which is the moment it has before the activity can expire), the denomination of fixed-term deposit is granted.
Financial entities make use of the capital granted in the course of a period of time established in the interbank fixed-term deposit, with the aim of achieving a higher level of profitability than the one that the user is going to reimburse (base business of a banking entity). The availability that exists to large markets (that is, where those who acquire the largest are located), among the most important that can be indicated, the interbank deposit of the market is what helps to achieve the profit.
Commercial contracting of deposits is restricted by articles three hundred three to three hundred and ten of the commercial code. Notably, the interbank deposit is a type of contract where the depositor grants the entity an established volume of money with the responsibility of protecting it (in relation to the nominal valuation that it has) and returning it to the one who made the deposit from the set parameters.
At the moment, the one that carries out the deposit of the capital is, in the same way, a financial entity (in other words, that an entity deposits a capital to another entity), we speak of interbank deposit, and these are a fraction of great importance in the interbank market.
Banking entities are granted funds given by their users (which are known as passive activities or operations) through the aforementioned deposits and the money that is integrated into them, which are used to achieve profits or profitability much higher. This aforementioned use of money is based, fundamentally, on making a provision of money to other users who require it (known as asset activities), charging interest for that.
The amount of capital that banking organizations have at their disposal to be able to make loans, not only comes from the deposits that are granted but also, they have the possibility of carrying out capital benefits by making an accounting entry, for What they do not deliver the money in cash but instead make or make available to the user in an account belonging to the same, which can be done by assisting correctly with certain restrictions.
The conditions presented by the bank to have money available to be able to make benefits will therefore depend on the interbank and normal deposits made by its users, that is, on the deposits granted to it. As banking entities, on a regular basis, are carrying out activities of their users regarding collections, reimbursements, expenses, among other things, deposits (above all, those with greater visibility) are in constant fluctuation, which is why find changing continuously, and along with this, the parameters to offer the various credits.
Interbank deposit and its operational activities
In order to respond to these changes or variations that occur with respect to the parameters that were just mentioned, the interbank deposit or interbank market has been created, which was also discussed in the previous sections. In this market, banks make capital benefits among themselves, carrying out operations that most of the time is of short duration (one day or a few days).
It refers to a market in which all those who are present displace volumes of the great importance of capital so that the number of operational activities can sometimes have a high degree. The interbank deposit market is restricted and controlled by what is the central bank (on the occasion of the Spanish nation, it is the settlement system of the Spanish bank) and the parameters are determined by the same according to the market parameters.
Those interest models that are going to be used generate results in other operational activities, where it is the foundation of certain indicators (such as Euribor, for example). Given any eventuality of these, the parameters of the market will be of great importance (regardless of whether it is carried out in one way or another), in order to specify the interest models that banking entities will end up charging their same users.
As has been observed in previous sections, the interbank deposit market is the foundation for almost all the operational activities of banking entities and, in the same way, for the construction of the EURIBOR, LIBOR and EONIA, which are models of interest to those that banking entities are in a position to take or lend funds in various periods or installments.
Interbank deposit example
Let’s make the assumption that the interbank deposit presented below is quoted on our part:
- Deposits in an amount of half a year: three point twenty-five minus three point thirty percent (3, 25 – 3.30%)
Here what is established is that at the three-point twenty-five percent (3.25%) interest model, you are willing to take funds, and at 3.30% you are willing to take loans. This has some consistency because all the time you want to obtain benefits from operational activities by acquiring economic funds (making low-interest repayments) and making money benefits at high levels (charging high interest).
But if, on the other hand, an interbank deposit is quoted to us:
- Deposit in a period of one quarter: five point fifty minus five point fifty-five percent (5.50-5.55%)
To work with the bank that is making the deposit quote, in case you want to take some funds, it must be done at the time of five-point fifty-five percent (5.55%) interest, reimbursing high-level interest. In other words, making us costly financing. On the other hand, if you want to make the provision of funds, it must be done in the interesting mode five-point fifty percent (5.50%), because in this way the capital investment is being transformed by the part of the banking organization that is in a position to reimburse us for a lower interest rate.