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Page 21<br />
Only banks and building societies<br />
can borrow direct from the Bank of<br />
England because of the crucial role<br />
they play in the nation’s payment<br />
systems.<br />
The Bank of England charges its<br />
borrowers a premium over market<br />
rates of interest. This ensures they seek<br />
money first in the open market before<br />
turning to the Bank of England.<br />
Loans are made for short periods only<br />
and secured on high-quality collateral<br />
like government bonds to protect the<br />
Bank of England against losses.<br />
The Bank of England does not<br />
provide long-term finance<br />
for banks, nor will it lend to<br />
insolvent banks.<br />
Finance of that sort might come<br />
from the government under<br />
the direction and control of the<br />
Chancellor of the Exchequer.<br />
A BANK<br />
BALANCE SHEET<br />
LIABILITIES<br />
ASSETS<br />
WITHDRAWALS<br />
– BY DEPOSITORS<br />
– BY INVESTORS<br />
LIQUID ASSETS<br />
– CASH<br />
– DEPOSITS AT BANK OF ENGLAND<br />
– GOVERNMENT BONDS<br />
BANK OF ENGLAND LOAN<br />
DEPOSITS<br />
– MONEY IN CURRENT ACCOUNTS<br />
– MONEY IN SAVINGS ACCOUNTS<br />
LOANS<br />
– TO HOUSEHOLDS<br />
– TO BUSINESSES<br />
– TO OTHER BANKS<br />
BONDS<br />
– MONEY FROM BOND SALES<br />
TO INVESTORS<br />
CAPITAL<br />
– SHAREHOLDERS’ MONEY<br />
– RESERVES OF PAST PROFITS
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