The Bank of England. The bank of England was founded in 1694 by a group of wealthy merchants and landowners for the purpose of raising a loan for King William III in order to

The bank of England was founded in 1694 by a group of wealthy merchants and landowners for the purpose of raising a loan for King William III in order to finance his war against Louis ХIV, King of France. Although it was a private bank, it enjoyed a special relationship with the government, and became, in effect, the government’s bank. In 1946 the Bank of England was nationalized and since then has been formally under the control of the Treasury, the government’s financial ministry. The Governor of the Bank of England is appointed, in theory, by the Queen, in practice, by the Prime Minister on the advice of the Chancellor of the Exchequer.

As the government’s bank, the Bank of England carries out many functions. It runs the accounts of government departments and handles the government’s vast number of financial payments, receipts and transfers. It also raises money for the government by the sale of government securities and treasury bills. Government securities or gilts are long-term fixed interest loans, payable by the government at a fixed date up to twenty years in the future. Treasury bills are short-term loans sold at a discount and repaid at their face value after ninety-one days. Another responsibility of the bank is the issue of bank notes. It is the only bank in England and Wales which is allowed to issue bank notes, although in Scotland and Northern Ireland the commercial banks issue their own notes. Finally the Bank of England manages the gold and currency reserves and by buying and selling these can influence the sterling exchange rate.

The Bank of England is also the bankers’ bank, since all banks doing sterling business in the United Kingdom are required to have accounts with it. Commercial banks use these accounts to make payments to one another. The Bank of England can influence the behaviour of commercial banks by controlling the amount of money it requires them to deposit in their accounts. If it increases the amount required, then the banks will have less money to lend to their customers, and this will have an effect on the economy as a whole.

The Bank of England exercises the general authority and supervision over the banking and financial system in the United Kingdom, maintaining good order and confidence. The Bank is situated in Threadneedle Street, in the heart of the City of London.

In the City of London you can see literally dozens of banks, both British and foreign, in every street. There are the headquarters and several branches of the major British banks: Barclays, Lloyds, Midland and National Westminster – which occupies the tallest building in London. These banks have a branch network all over the United Kingdom and provide ‘retail’ banking services for individuals as well as for both large and small companies. They offer two kinds of accounts – deposit accounts which bear interest and current accounts for which a cheque book is provided to withdraw and transfer money. The clearing of cheques, together with other money transfer systems is a major activities of these banks, that is why they are called ‘clearing banks’. They cooperate to clear cheques through the Bankers’ Clearing House, a centralized cheque-clearing system based in the City of London.

Unlike the clearing banks, merchant banks do not normally provide services to the general public. They are specialized ‘wholesale’ banks with a small staff and no branch network, which raise loans for large companies and governments and provide financial and investment advice. They are involved in the financing of international trade and will accept or guarantee Bills of Exchange, that is why they are sometimes referred to as ‘accepting houses’.

Foreign banks in London generally concentrate on international banking, particularly in Eurodollar market – Eurodollars are US dollars held in bank accounts outside the USA.

However, recently some foreign banks have begun to land money to companies in Britain and a few have started to offer banking services to a general public, although on a limited scale, since they do not have a branch network. Banks are gradually becoming more like one another and it is more accurate to talk of merchant banking and retail banking rather than merchant banks and retail banks. The British clearing banks now have their own merchant banking divisions and are engaged in extensive international operations and some merchant banks are now offering banking services to the general public. The rapid advances in technology make a branch network less important than

it used to be as a basis for offering services to the public. The present trend is for all banks to offer a wide range of financial services to all types of customers.

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