All banking systems need a highly developed money market so that banks may adjust their liquidity positions day by day and occasionally during the same day. Until September 1971 it was true to say that there were two money markets corresponding to the two banking systems—the discount market serving deposit banks and the parallel sterling money market serving secondary banks. For some time there had not been a rigid separation between them; secondary banks operated in a small way in the discount market, and discount houses had begun to assume an important role in the parallel market. The new arrangements for the control of banks will bring these two money markets much closer together. The basic difference between them will remain, however, that the discount market is predominantly a market on which lending is secured, while on the parallel market all lending is unsecured. On the discount market the Bank of England acts as lender of last resort to the discount houses, whereas the parallel market lacks a lender of last resort.
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