Abstract
The traditional banking system in 1960 comprised the London clearing banks, the Scottish and Northern Irish banks and the London discount market. In the early 1960s the clearing banks (including those in Scotland) and the Northern Irish banks accounted for some 95 per cent of the bank deposit liabilities of United Kingdom residents. By the end of the decade this proportion had fallen to less than 80 per cent as a result of the increasing competition from the non-clearing banks and the constraints exercised by the Bank of England on the clearing banks (Committee of London Clearing Bankers, 1977). The role of the discount market also changed radically in the period after 1960, largely due to the emergence of other money markets which quickly exceeded the traditional market in size. Excellent accounts of the evolution of the system are given by Sayers (1960), Griffiths (1973) and Rowan (1973).
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More recently, the Bank of England has retained this power to determine short-term rates through its holding of commercial bills. As the bills it holds mature, it is necessary for the resulting shortage of cash in the discount market to be met. This can be done either by loans from the Bank of England, or by its discounting of bills to replace those maturing. In either case it is able to impose an interest rate on the market.
The reason was that certificates of deposit, unlike commercial bills, were not self-liquidating instruments (Chapter 6).
Money GDP divided by the money stock.
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© 1986 the Estate of the late John Grady, and Martin Weale
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Grady, J., Weale, M. (1986). The Traditional Banking System. In: British Banking, 1960–85. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-07535-5_5
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DOI: https://doi.org/10.1007/978-1-349-07535-5_5
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-349-07537-9
Online ISBN: 978-1-349-07535-5
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