Central Bank supervise the banking system; fix the minimum interest rate issue bank notes; control the money supply; influence exchange rates; and acts as a lender of last resort

2. Commercial banks are businesses that trade in money. They receive and hold deposits in current and savings accounts, pay money according to customers’ instructions, lend money, and offer investment advice, foreign exchange facilities, and so on. In some countries such as England these banks have branches in all major towns; in other countries there are smaller regional banks. Under American law, for, example, banks can operate in only one state. Some countries have banks that were originally confined to a single industry, e.g. the Credit Agricole in France, but these now usually have a far wider customer base.

3. In some European countries, notably Germany, Austria and Switzerland, there are universal banks which combine deposit and loan banking with share and bond dealing, investment advice, etc. Yet even universal banks usually form a subsidiary, known as a finance house, to lend money – at several per cent over the base lending rate – for hire purchase or installment credit that is, loans to customers that are repaid in regular equal monthly amounts.

In Britain, the USA and Japan, however, there is a strict separation between commercial banks and banks that do stockbroking or bond dealing. Thus, in Britain, merchant banks specialize in raising funds for industry on the various financial markets financing international trade. Issuing and underwriting securities, dealing with takeovers and mergers, issuing government bonds and so on. They also offer stockbroking and portfolio of management services to reach corporate and individual clients. Investment banks in the USA are similar, but they can only act as intermediaries offering advisory services, and do not offer loans themselves.

In Britain there are also building societies that provide mortgages, i.e. they lend money to home buyers on the security of houses and flats and attract savers by paying higher interest than the banks. The savings and loan associations in the United States served a similar function and most of them went spectacularly bankrupt at the end of the 1980s.