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Money
Explanation
The banking system in the UK is made up of a range of different institutions. All of these work together to provide all the financial services that we use. The main types of institutions are:
- The central bank - the Bank of England. The Bank of England has taken a higher profile in recent years now that it has been given operational independence in 1997. This has meant that it has responsibility for price stability (the control of inflation) and also the financial stability of the financial system. The Bank of England also acts as a banker to the government and all of the clearing banks have to have accounts with the Bank of England for the clearing of funds.
- Retail banks - the main retail banks are the High Street banks, often known as commercial banks. These include companies like the Nat West, HBOS, the Abbey National and LloydsTSB. They specialise in providing banking facilities to the general public through branches and the Internet. This means taking deposits and making loans.
- Investment banks - these are often also known as wholesale banks (or merchant banks) and they do not deal with the public at a retail level, but act as brokers offering companies a range of services including arranging loans and advice on other sources of finance. This may include arranging for the issue of shares on the equity markets. The deposits and loans that they take are known as wholesale deposits and loans and will generally be on a much larger scale than those offered by retail banks.
For more detail on the role of money in the economy and the financial system, why not have a look at the theory section.
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