Banking law is a compilation of laws that are devised to control and supervise the creation, running, maintenance and closure of banks. They determine the banker-customer relationship along with providing the system of banking. They are monitored by the state as well as the federal statutes. All bank accounts in state-owned or state contracted banks operate in accordance with these laws. Although such laws differ from country to country, the basics are similar in nature. Banking law primarily delineates the establishment, working and management, and the closure of a bank. It also defines the various banking-related terms, for instance, bank, deposit, interest, etc. It lays down the standard operating procedure for a bank. Any improvisation, bankruptcy, liquidation and legal penalties are mentioned in it as well
Banks work on fixed principles that are responsible for their stability. These are the ones laid down by the banking law. It assures that all banks keep the minimum capital ratio so that the goals of the regulator are met with. Banks are also supposed to procure a banking license in order to work after which they fall under the banking law, a breach of which will lead to rescinding of the license. The license helps the state keep an eye on the working of the bank. There are also certain prerequisites that the banks must follow according to the banking law. The capital requirement must be decided against the total assets of the bank. The minimum capital is kept in the form of gold, local currency or foreign currency according to the law of the country and its amount is again decided with respect to the banking law of the country. The banks must also reproduce their annual financial transcripts and have them audited for transparency and accuracy. They are also required to create catalogs with the terms and conditions of securities detailed on them so that an investor is made aware of the economic situation.
Banking law serves a certain purpose. The document is made to ensure a low level of risk for bank creditors. It also aides in decreasing the chances of interference caused by unfavorable economic conditions which may lead to major or even complete bank malfunctions. Moreover, such a law is devised to ascertain the proper, legal usage of a bank lest it falls prey to criminal activity. It helps keep the confidentiality of a bank intact and also assists in the disbursement of credit to respective sectors.
Tips and comments:
The relationship between the customer and banker is developed on the basis of a contract. However, this relationship has to be maintained for the benefit of both the bank and the customer. There have been reports of forged documents being used by customers and false transactions being made from accounts. Hence, it is as much the duty of the customer to take care of his cheque book, financial statements, etc as it is if the bank. Such breaches and their penalties have been covered in the banking law. Strangely, the bank owes no duty towards its customer when it comes to advice.
