United Kingdom - Banking and securities

The United Kingdom is known throughout the world for its expertise in the field of banking, ranking third in the world after New York and Tokyo. Most activity takes place in the City of London, which has the greatest concentration of banks and the largest insurance market in the world. Until the Labour government of Tony Blair disengaged it from the Treasury, The Bank of England, established in 1694 as a corporate body and nationalized in 1946, held the main government accounts, acted as government agent for the issue and registration of government loans and other financial operations, and was the central note-issuing authority, with the sole right to issue bank notes in England and Wales (some banks in Scotland and Northern Ireland have limited note-issuing rights). It administered exchange control for the Treasury and is responsible for the application of the government's monetary policy to other banks and financial institutions. After its separation from the Treasury, the Bank of England retained the power to establish interest rates, while the Treasury continued to reign in public spending.

The banks handling most domestic business are mainly limited liability companies. The four major clearing commercial banking groups are Barclays, Lloyds, Midland, and National Westminster. These banks carry out most of the commercial banking in England and Wales. In Scotland, which has its own clearing system, there are three clearing banks: the Bank of Scotland, the Clydesdale Bank, and the Royal Bank of Scotland. Other institutions, notably the building societies, have begun to compete with the clearing banks by providing current and deposit account facilities.

There are concerns that Frankfurt, Germany, will develop as the major financial center in the EU. The City of London's role in this context is under threat mainly because Frankfurt is the site of the European Central Bank, which controls monetary policy for the euro-area EU states.

The National Savings Movement, started in 1916, encourages widespread savings investment by small depositors in trustee savings banks and the National Savings Bank (formerly known as the Post Office Savings Bank), the largest organization of its kind in the world, with about 20,000 in post offices. Merchant banks are of great importance in the financing of trade, both domestic and overseas. In addition, about 275 overseas banks are directly represented in London.

After the "Big Bang"—the deregulation of the UK's financial markets—the Financial Services Act, which became law in November 1986, set out a system of self-regulating organizations (SROs) to oversee operations in different markets under the overall control of an umbrella body, the Securities and Investment Board (SIB). In 1996 there were five SROs covering the main financial activities, and since April 1988 any firm conducting investment business must have authorization to do so from the appropriate SRO. The International Monetary Fund reports that in 2001, M2—an aggregate equal to currency and demand deposits plus savings deposits, small time deposits, and money market mutual funds—was $1,626.6 billion. The money market rate, the rate at which financial institutions lend to one another in the short term, was 5.08%.

In 1762, a club of securities dealers was formed in London to fix rules for market transactions, and in 1773 the first stock exchange was opened in London. In 1801, the London Stock Exchange was constructed on part of its present site; since that time, it has provided a market for the purchase and sale of securities and has played an important part in providing new capital for industry. Some 2,600 companies were listed in the mid-1990s, with a total market capitalization of £4.8 trillion. The Stock Exchange opened to international competition in October 1986, permitting wider ownership of member firms. Minimum rates of commission on stock sales were abolished. In April 1982, the London Gold Futures Market began operations; it is the only market in Europe making possible worldwide, round-the-clock futures dealings in the metal.