Banks are financial intermediates. Their money forms part of the money supply, whereas other financial institutions' assets don't.
1. credit creation
2. transmission of money(credit cards, (travellers)cheques, standing orders, direct debit, EFTPOS)
3. Advisory services (trusteeship, foreign exchange, brooking, investment management, taxation)
4. Other financial products offering (mortgages, insurance)
Liabilities (sight and time deposits), 56% is eligible
Assets - cash (coins + 0.45% cash ratio for the Bank), loans(up to 3 month to LDMA,
They discount bills. Each week Treasury offers bills to sale. Interest determines money supply. LDMA buys them. The Bank is also the lender of the last resource to LDMA.
They accept bills (making them fine (first class) bills by guaranteeing them - lowest discount rate.
1. Central bank - government
2. Savings bank - to encourage small savers, insignificant in England (Germany)
3. Co-operative banks (France) and credit unions
4. Foreign banks
5. Building societies (special privileges from the state, assist home-buyers)
To ensure stability, to allow the Bank to control money supply.
stricter supervision (minimum capital to £5m)
Classical market (the Bank, LDMA, commercial banks). Government lends to LDMA that lends to banks.
1. Local authorities market
2. Finance houses (hire purchase)
3. Large Companies
4. Interbank market
5. CD market
1. Commercial banks do not get involved for projects over 5 years in UK (except mortgages, not capital market). Banks do not buy shares and debentures.
2. Merchant banks - their business, highly specialised.
3. Insurance companies and pension funds - major contributors, have gathered loads of money over years. Buying of privatisation shares. Rich if correctly managed.
4. Investment trusts - buys shares of other companies.
5. Unit trusts - for small investors. Manager of the trust buys shares for you. Highly regulated.
6. Government sponsored institutions-small businesses and high unemployment industries funding.
7. Consortium bank - international institution, rare, no bank holds >50%)
8. Private individuals - less nowadays, big inheritance tax.
9. Self finance - major source, ploughed back profits.