Prices and markets. Types of market, страница 46

The need to have liquid assets and the desire to make as much profit as possible present the banks with a problem. The rates of interest on short-term loans tend to be lower than those on long-term loans. The banks are taking bigger risks when they lend money for long periods, and hence they charge higher rates of interest. Long-term loans, however, are illiquid assets. They cannot be ‘called back’ from the borrowed, and the borrower’s IOU cannot be discounted in the money market, which deals in short-term loans.

The problem for the banks, therefore, is that their liquid assets are much less profitable than their illiquid assets. The banks have to try and arrange their lending so that they have sufficient liquidity to meet any probable demands for cash, and sufficient profit to satisfy their shareholders.

·  The clearing of cheques

In a banking system with several different banks, it is very likely that many people making payments by cheque will have their accounts at different banks from the people receiving the payments.

For example, suppose that Mrs. Jones, with an account at Lloyds, buys a second-hand car for 5000$ from Mr. Smith and pays for it by cheque. Mr. Smith then pays this cheque into his own bank, say Barclays. Now Mr. Smith cannot receive payment until 5000$ has been transferred from Mrs. Jones’s account at Lloyds to his account at Barclays. Every day millions of such cheques are paid into the banks. It would be impossible to transfer money for each individual payment.

In order to deal with this problem, the banks have cooperated to set up a cheque clearing system. Cheques which are drawn on one bank and are payable to another bank are sent to a clearing house in London where, each day, the amounts which each bank owes to the other banks are totaled. For example, at the end of the day it may be found that the National Westminster owes 6000 million $ to the Midland, while the Midland owes 6500 million $ to the National Westminster. Only the difference of 500$ million needs to be transferred from the Midland to the National Westminster. These inter-bank settlements are carried out by using the accounts which the banks maintain at the Bank of England.

The clearing system. When cheques have passed through the clearing process they are sent to the bank branches on which they were drawn so that, after examination, payments can be made.

Considerable technical changes are taking place in the arrangements for clearing cheques. Increasing use is being made of computers and magnetic tapes to handle and record the transactions between banks.

3.7.6 The Trustee Savings Bank

In the 19th century, commercial banks were used mainly by the wealthy and by trades. This led to a number of savings banks being set up to accept the small savings of low-income households and to encourage the habit of saving. The Trustee Savings Banks have developed from these small beginning and now have some 1600 branches. In more recent times, they have extended their operations and offer the full range of banking services. They are now owned and controlled by a holding company, the TSB Group plc.

3.7.7 The National Saving Bank

This bank was also set up to encourage the small saver. One of its advantages is that it operates through post offices, which gives it more ‘branches’ than any other bank. The funds accumulated in the NSB are loaned to the government.

3.7.8 The National Girobank

This was established in 1968 to provide a simple means of transferring money by using the facilities of the Post Office. Account holders can make and receive payments by means of giro cheques, and money can be withdraw and paid in at post offices. The National Girobank has also gradually extended its range of banking services to include standing orders, travellers cheques and the provision of loans. As is the case with the NSB, its accumulated funds are loaned to the government.

3.7.9 Building societies