The New Money Markets

Abstract

The new money markets that came into being from about the mid-1950s are usually called ‘parallel’ markets because they developed alongside the traditional discount market, which they rapidly overtook in size. This term is, however, misleading since it obscures the extent to which the new markets were interlocked in a complexity of operations which it is impossible to unravel statistically. Solely for clarity of exposition, the markets can be divided into (a) the local authority markets, (b) the sterling and currency interbank market, (c) the negotiable certificate of deposit market and (d) the eurodollar and eurocurrency markets. The new markets differed considerably from the traditional discount market; all lending was unsecured, there was no lender of last resort, loans were not self-liquidating and the authorities had no direct control over the flow of funds through them. All the markets provided the non-clearing banks with an opportunity, which for most of them had not previously existed, to develop deposit banking and thus to expand their deposit liabilities on the basis of which they could engage directly in commercial lending. Statistics illustrating the rapid growth of these markets, and the related finance house market, are shown in Table 6.1.