The credit system of a country is the set of credit institutions, made up of the monetary authority of a given country or region and the credit institutions.
The credit system as a whole has the mission of acting as an intermediary between the economic agents that offer and demand money through credit contracts. And the main objective of its construction was to obtain a tool for analyzing the transaction mechanisms and consequences of decisions made by credit institutions and the monetary authority.
The credit system makes it possible to evaluate the role and effects of credit institutions for their control over the allocation of credit and of the monetary authority for its control over interest rates.
Credit system participants
The main participants in the credit system are the following:
- Monetary authority: The monetary authority is the entity called the central bank with a certain degree of independence from the Government of a country or a region, which controls the money supply of a currency and regulates the interest rates that influence credit rates of credit institutions, generally with the objective of controlling inflation.
- Credit institutions: A credit institution is a public or private organization dedicated to granting loans to third parties. There are different types of credit institutions. They stand out from them:
- Banks: It is a financial company that accepts deposits from the public and creates demand deposits, called loans; they also provide other types of financial services.
- Savings banks: It is a type of credit institution that offers the same services as a bank, with the difference that savings banks have a foundational nature, which is why they must allocate a part of their dividends to social purposes.
- Credit cooperatives: They are cooperative societies whose corporate purpose is to serve the financial needs of their partners and third parties through the exercise of the activities of credit institutions.
- Electronic money entities: They are institutions that issue money that is stored in a virtual medium and that in turn is admitted as a means of payment by companies other than the issuer.
The growth, complexity and diversification of the credit system has generated the appearance of other entities that are also dedicated to financing third parties, granting them credit, but without being able to attract deposits from said persons, since it is an activity reserved exclusively for the entities previously indicated.
Credit system activities
The main activities of the credit system are summarized below:
- Receipt of deposits or other refundable funds.
- Loans: consumer credit, mortgage credit, transaction financing.
- Financial leasing (leasing).
- Payment operations.
- Issuance and management of means of payment: credit cards, checks, letters of credit.
- Granting of guarantees and subscription of commitments.
- Transactions on the entity's own account or on behalf of clients.
- Advice to companies on capital structure, industrial strategy and related issues, as well as advice and services in the field of mergers and company purchases.
- Intermediation in interbank markets.
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