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Country Economy

MONETARY SYSTEM.

Bank, industrial. industrial bank.

Bank, joint-stock commercial banks.

Bank loan. A loan by a bank, normally for a fixed period of two to three years or more for a specific purpose, usually to a commercial concern. The phrase bank loan’ is also loosely used to include overdrafts and personal loans. In this broader sense bank loans are more commonly known as bank advances. In Britain about 80 per cent of bank advances by value are for business purposes, although the commercial banks have recently begun making mortgage loans for house purchase on a large scale. Bank loans are normally secured (t> collateral security), repaid in regular instalments and with interest charged at rates which vary with the bank’s base rate. British banks have been compared unfavourably with banks in other countries in the extent to which they provide long-term loans to industry. It is true that until about twenty years ago the bulk of bank advances were in the form of overdrafts, which are repayable on demand. This was partly because the banks in Britain have not in general been able to attract long-term deposits, and it is regarded as bad banking practice to borrow short and lend long’. However, commercial customers of the banks in Britain have also preferred overdraft finance, which is cheaper and more flexible than other types of borrowing, provided the banks were willing to renew overdraft facilities and allow, as they have done, much overdraft borrowing to become hard core’. In recent years the British banks have greatly increased contractual medium-term lending (term loans), and this type of advance now accounts for about half the bank advances to non-personal customers. Most medium-term lending is for periods of five to seven years, and lending for longer periods than this is still less common in Britain than in some continental countries. business finance; wilson committee.

Bank-note. A note issued by a bank undertaking to pay the bearer the face value of the note on demand. Bank-notes in England had their origin in the receipts issued by London goldsmiths in the seventeenth century for gold deposited with them for safe keeping. The whole practice of banking had its origin in the activities of these goldsmiths, who began lending money and whose deposit receipts came to be used as money. Later the goldsmiths issued bank-notes, and so did the banks that developed later still. Today only the bank of England and the Scottish and Irish Banks in the U.K. are allowed to issue bank-notes. Since 1931, when bank-notes became inconvertible to gold, the promise on a bank-note to pay the bearer on demand’ has simply been an

Bank of England undertaking that the note is legal tender. Thus, the Currency and Bank Notes Act of 1954, which regulates the issue of bank-notes in Britain, refers to the fiduciary issue. Only five denominations of notes are now issued to the general public, the largest being the £50 note. Most other developed countries issue notes of much larger denominations than this, probably because the use of cheques is less developed elsewhere than in Britain. (The 10s. note was replaced by the 50p coin in 1969 and a £1 coin was introduced in 1983.) O’ banking and currency schools.

Bank of England. The central bank of the U.K. Set up in 1694 as a joint-stock company by Act of Parliament, the bank was a private company formed by a group of London merchants to lend money to the state and deal with the national debt. The Bank of England Act of 1946 brought the bank into public ownership. The Bank of England is the government’s banker and is also the principal organ for implementing the state’s financial and monetary policy (n> banking). It is managed by a governor, a deputy governor and a court (board) of sixteen directors (four full-time executive directors) appointed by the Crown for periods of five and four years. The bank is obliged by law to accept directives from the treasury, although the governor has a statutory right to be consulted and in fact acts as a channel of communication between the Treasury and the private financial insti-

Balance Sheet of Bank of England 17 November 1982

Liabilities Issue Department Notes in circulation Notes in Banking Department

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