The commercial banks

The banks handling the major part of the domestic banking business in the United Kingdom are limited liability companies which, in the main, are subject to the ordinary law relating to such companies.

Some of the main features of the United Kingdom commercial banks are:

1.A relatively small number of banks control a large number of branches, United Kingdom members of the British Bankers' Association include 11 London dealing banks, 5 banks in Scotland and 3 in Northern Ireland; they control some 13.000 branches and had total net deposits of over 9.230 million.

2.The volume of cheques handled is very large and, in spite of a stamp duty of 2 on each cheque, many payments – and even relatively small payments – are made by cheque. The average monthly value of cheques, drafts, bills and bankers effects cleared through the London and Provincial Clearing Houses was 29.889 million; and many cheques do not, for various reasons, pass through clearing houses. In addition, a growing volume of payments is effected through the credit transfer scheme: the

average monthly value of the credit clearing through the London Clearing House is 657

million.

3. It is the practice of the London clearing banks to maintain a ratio of about 8 per cent between cash reserves and total deposits (of which rather more than a half are repayable on demand, the remainder being mainly deposits at interest and subject to notice).

The banks make advances to customers partly in the form of overdrafts and partly in the form of loans (with or without collateral security); in either case, the advance is normally for a short term only unless renewed.

The ratio of London clearing bank advances to total deposits declined from about 43 per cent in 1938 to about 17 per cent at the end of the war, but gradually climbed back to settle down to a level of 26 to 30 per cent for a number of years from 1951. After the withdrawal in 1958 of official requests to the banks to restrict the level of their advances, the percentage again moved up, and by July 1961, when the banks were again asked to restrain their lending, was over 47 per cent. In May 1965 the ratio of advances to total deposits was 535 per cent, well above the 1938 level. The analysis shows the relative size of bank advances outstanding in recent years to different sectors of the economy.

The increase in the volume has been accompanied by innovations in bank lending practice, including the introduction of schemes for personal loans repayable by fixed monthly installments over periods up to two years, and facilities for limited service accounts at low cost. Another development was the acquisition by many banks of share capital in hire-purchase finance companies.

4. Certain banks in Scotland and Northern Ireland have retained limited right to issue notes; these issues, apart from an amount specified by legislation for each bank, must be fully covered by Bank of England notes and by coin.