in Britain is the highest bridge into Europe.
Britain as a world leader in “high-tech” industries
One of the three British microprocessor producers was making 70% of British
silicon wafers required for new information technology even in the
seventies. On Nov.3.1999 Techmark, a new technology market, was launched at
the London Stock Exchange. According to Gordon Brown, Chancellor of the
Exchequer, Techmark will be the London Stock Exchange “market within a
market” for innovative technological companies.
The specialised institutions are agencies created to meet the needs of
specific groups of borrowers mostly industrial and commercial - which are
not adequately covered by other institutions. They operate in both public
and private sectors. In general they offer alternative funding to that
provided by banks and building societies. Some of them were set up with
Government support and with financial backing from banks and other
financial institutions. Some public sector agencies offer financial support
to industry in Scotland, Wales, and Northern Ireland.
The main private sector institutions are finance houses and leasing
companies, factoring companies, finance corporations and Venture Capital
Companies.
Finance houses are major suppliers of hire-purchase finance for the
personal sector of short term credit and leasing to the corporate sector.
Leasing companies buy and own equipment required and chosen by businesses
and lease it at an agreed rental rate.
Factoring companies provide cash for a company in exchange for the sums
they owe. A factoring company buys up a client’s invoices as they arise and
finances up to 80% of the value of the invoices; the rest is paid after a
period, after deduction of administration and finance charges.
Finance corporations meet the need for medium and long term capital when
such funds are not easily or directly available from traditional sources
such as the Stock Exchange or banks.
Venture Capital Companies offer medium term and long term equity financing
for new and developing businesses when such funds are not readily available
from banks and other traditional sources. The British Venture Capital
Association has 103 full members, which make up over 99% of the industry.
Financial markets is a collection of sophisticated securities, futures and
options the money market, the euro currency market, Lloyd’s insurance
market, the foreign exchange market and markets in bullion and commodities.
The Stock Exchange
The origin of the London Stock Exchange goes back to the coffee houses of
the seventeenth century where those who wished to invest or raise money
bought and sold shares in joint stock companies. Brokers later opened their
own subscription Economy of the country has been directed through the City
which is the nerve center of the national finance. The greater part of the
country’s income comes from invisible exports - operations originating from
the City and flowing through its channels.
A large proportion of Britain’s wealth has been invested by the City
overseas. A number of banking institutions have their head offices in
Britain but operate mainly abroad in particular regions such as Latin
America or East Asia through extensive branch networks. The major bank in
this sector is Standard Chartered. This shows how the City of London
expands its activities beyond the country’s borders; the same goes for the
influence of the London Stock Exchange and Commodities Exchanges
(particulars of the City of London as a financial center will be dealt with
in Chapter three).
Chapter 3.
The City of London as a Financial Center, its Main Institutions.
There has been a long tradition in Britain of directing the economy through
the great financial institutions together known as “the City”, which until
1997 were located in the “Square Mile” of the City of London. This remains
broadly the case today, though the markets for financial and related
services have grown and diversified greatly.
Banks, insurance companies, the Stock Exchange, money markets, commodity
shipping and freight markets and other kinds of financial institutions are
concentrated in the solemn buildings of the City and beyond its borders.
The City of London is the largest financial center in Europe. London is
also the world’s largest international insurance market and has the biggest
foreign exchange market.
Britain’s financial service industry gives about 6.5 % of its gross
domestic products (GDP) and contributes some 35 thousand million pounds a
year. The largest contributors are banks, insurance, institutions pension
funds, and securities dealers. To help Britain’s financial services to
respond to the competition and at the same time to protect the public
investment, the Government introduced 3 pieces of legislation to supervise
financing the industry: the Financial Services Act (1986), the Building
Societies Act (1986) and the Banking Act (1987). Under these acts
investment businesses need to be authorized and they have to obey rules set
in the legislation. The main responsibility to supervise were the Bank of
England, the Building Societies Commission, the Treasury and the Department
of Trade and Industry. The Serious Fraud office was set up to investigate
and prosecute significant and complex fraud.
The Bank of England.
The Bank of England was established in 1684 by Act of Parliament and Royal
Charter as a corporate body. Its entire capital stock was acquired by the
Government under the Bank of England Act in 1946. It is the heart of the
City of London and Britain’s central bank. The Bank’s main functions are to
execute monetary policy, to act as banker to the Government, to issue
banknote and to provide central Banking facilities
for the banking system that is the Bank is responsible for the financial
system as a whole; it is “lender of last resort”. The Bank’s main objective
is to support the Government in achieving low inflation. Unlike some other
central banks the Bank can not act independently of the Government.
Decisions on changes in the interest rates are taken by the Chancellor of
Exchequer. The Bank’s role is to advise the Chancellor and to carry out his
decisions. The 1999 (November) interest rate was 5.5%.
As banker to the Government the Bank of England is responsible for managing
the National Debt. It has the sole right in England and Wales to issue
banknote. The note issue is no longer backed by gold but the Government and
other securities. The Scottish and Northern Ireland Banks have limited
rights to issue notes and those must be fully covered by holdings of the
Bank of England notes. Coins can be provided by the Royal Mint.
The Bank of England can influence money market conditions through discount
houses. If on any day there is a shortage of cash in Banking system, the
bank relieves the shortage either by buying bills from the discount houses
or lending directly to them.
The Bank of England is responsible for supervision of the main wholesale
markets in London for money, foreign exchange or gold bullion.
On behalf of the Treasury the Bank manages the Exchange Equalization
Account (EEA). Using the resources of EEA the Bank may intervene in the
foreign exchange markets to check undue fluctuations in the exchange rate
of sterling.
Discount Houses.
The Discount Houses are unique to the City of London (and to Britain as a
country). They occupy the central position in the British monetary system.
They act as intermediaries between the Bank of England and the rest of the
banking sector promoting an orderly flow of funds between the Government
and the banks. In return for acting as intermediaries the discount houses
have privileged daily access to the Bank of England as “lender of last
resort”.
Banks.
Banks in Britain developed from the London gold miths of the 17th century.
By the 1920s and the 1930s there were five large clearing banks with a
network across the country. In February 1996 there were 539 institutions
authorized under the Banking. Act of 1987. In British banking retail banks
should be described as dominant.
Retail banks primarily serve personal customers and small to medium-sized
businesses. They operate through more than 11.350 branchers offering cash
deposits withdrawl facilities and systems for transferring funds. They
provide current accounts, deposit accounts various types of loan
arrangements and a growing range of financial services.
The main banks in England and Wales are Barklays, Lloyds, Midland, National
Westminter and the TSB group. The major Scottish banks are the Bank of
Scotland, Clydesdale and Royal Bank of Scotland.
With a relaxation of restrictions on competition among financial
institutions major banks have diversified the services they provide. They
have lent more money for house purchases, have more interests in leasing
and factoring companies, merchant banks, securities dealers, insurance and
trust companies. They provide low facilities to industrial companies ands
now support a loan guarantee scheme under which 70% of the value of loans
to small companies is guaranteed by the Government.
Plastic card technology has revolutionized cash transfer and payments
systems. There are around ninety two million plastic cards in circulation
in Britain. There are different types of cards but they often combine
functions. Cards can be used overseas too to obtain cash from bank ATM (
Automated Teller Machines). Cash machine cards have greatly improved
customers’ access to cash. All retail banks and building societies
participate in nation wide networks of ATMs. About two thirds of cash now
is obtained through Britain’s twenty one thousand ATMs. .A lot of them are
located different places at supermarkets, for instance.
Many banks offer electronic payment of cheques, telephone banking, under
which customers use a telephone to obtain account information, make
transfers or pay bills. Other innovations include computer-based banking
(through home computer) services over Internet and video links.
Merchant banks.
The traditional role of merchant banks was to accept bills of exchange, to
provide funds for trade and also to raise capital to British companies
through the issue of bonds and other securities. These activities continue,
