The City of London and its role as a financial centre - Финансы - Скачать бесплатно
Тhe city of London and its role as a financial center
Chapter 1.
Introduction. The Concept of the City of London.
Britain is a major financial centre providing a wide range of specialised
services. The country’s economy has for a long time been directed through
the great financial institutions which together are known as “The City”,
capital “C”, and which are mainly located in the famous “Square Mile” of
the City of London.
The “Square Mile” in the Roman Times historically emerged on the Thames as
the business and industrial nucleus of the future London. Through centuries
of business and religious developments the City assumed its role of the
world commercial centre as it is known today . When in the 20th century
Great Britain lost its empire and other financial centres got established
in the world, the city adapted itself to changed circumstances to remain
a world financial leader. The City of London has the greatest
concentration of banks in the world (responsible for about a quarter of
total international bank lending) , the world’ s biggest insurance market
(with about 1/5 of the international market ), a Stock Exchange with a
larger listing of securities than any other exchange, and it remains the
principal international centre for transactions in a large number of
commodities. A large proportion of Britain’s wealth has been invested by
the City overseas. The City’s annual foreign income roughly double that of
the British manufacturing industries. The above proves the City’s world
significance as a financial centre. Geographically the City is a large
office area bubbling with life at daytime and comfortably quiet outside the
office hours. It’s historical sights like the Tower of London, St Paul’s
Cathedral, the Museum of London, the Monument and others as well as the
beautifully impressive architecture of the office buildings attract crowds
of visitors. The only housing project, the Barbican, provides very
expensive accommodation along with an arts centre, a school and some
official premises.
Since after the mid - 80s financial and related services have started to
expand outside the “Square Mile” though the City of London remains the
symbol and actual reality of the country’s power.
C h a p t e r 2
Britain’s Economic and Financial Position Today at Home and Abroad.
Finance and industry of the British economy go hand in hand as industry
requires a diversified network of financial institutions to develop
successfully. Although Britain’s financial power today exceeds that of
the country’s industrial achievement, the country was for years “the
workshop of the world”. It still remains a highly industrialised country
but the end of the 20th century saw tendencies for the economic decline.
Historically, after two world wars and the loss of its empire Britain found
it increasingly difficult to maintain its leading position in Europe. The
growing competition from the United States and later Japan aggravated the
country’s position.
Britain struggled to find a balance between the governments intervention in
the economy and almost completely free-market economy of the United States.
The theories of the great British pre-war economist J. M. Keynes
stated that capitalist society could only survive if the government
controlled, managed and even planned much of its economy. These ideas
failed to get Britain out of the image of a country with quiet market
towns linked by steam trains puffing slowly through green meadows. Arrival
of Margaret Thatcher, the Conservative prime-minister in office between
1979 and 1990, discarded these theories as completely wrong. Mrs. Thatcher
claimed that all controls and regulations of the economy should be removed
and a market economy should recover. Her targets were nationalised
industries. She refused to assist the struggling enterprises of the coal
and steal industries which were slimmed down in order to improve their
efficiency. In the steel industry, for example, the workspace was reduced
from 130000 people to 50000 by 1990s and the production of 1 ton of steel
by 1990 took only 3,7 man hours instead of 12 man hours in 1980. The
government believed that privatisation would increase efficiency and
economic freedom would encourage private initiative. A lot of big publicly
owned production and service companies such as British Telecommunications,
British Gas, British Airways, Rolls Royce and even British regional Water
Authorities were sold into private hands. Britain began to turn into a
country of shareholders. Between 1979 and 1992 the proportion of the
population owning shares increased from 7 % to 24%.
The Conservative government reduced the income tax from 33% to 25% as an
incentive in production. This did not lead to any loss of revenue, since at
the lower rates fewer people tried to avoid tax. At the same time the
government doubled the VAT on goods and services to 15%. Today it is 17%.
Small business began to increase rapidly. In 1984 for example there was a
total of 1.4 million small business though including “the black economy”
the figure was nearer to million. Proportionately, however, there were 50%
more of them in West Germany and the United States and about twice more in
France and Japan.
Many small businesses fail to survive mainly as a result of poor management
and also because compared with other European Community Britain offers the
least encouraging conditions. But small businesses are important because
they can grow into big ones and because they provide over half of the new
jobs. It is particularly important because unemployment in Great Britain
rose to nearly 2.5 million people and a lot of jobs are part-time.
Energy is a major component of the economy, which depended mainly on coal
production until 1975, began to rely on oil and gas discoveries in the
north sea. Coal still remains the single most important source of energy,
in spite of its relative decline as an industry, so oil and coal each
account for about one third of total energy consumption in Britain. Over a
number of years British policy makers promoted the idea of energy coming of
different sources. One of them was nuclear energy as a clean and safe
solution to energy needs. In fact Britain constructed the world’s first
large scale nuclear plant in 1956. However, there were a lot of public
worries after the US disaster at Three Miles Island and the Soviet disaster
in Chernobyl. Also nuclear research and safe technology is proved to be
very expensive - by 1990 the real commercial cost of nuclear plant was
twice as high that of a coal power station. Renewable energy sources such
as wind or solar energy, are planned to provide 1% of the national energy
requirements in the year 2000.
Research and development (R&D) in Britain are Mainly directed towards
immediate practical problems. In fact British companies spend less on R&D
than any European competitors. At the end of the 1980’s, for example 71% of
German companies were spending more than 5% of their annual revenue on R &
D compared with only 28% of British companies. As a result Britain has been
automating more slowly than her rivals. In fact it may be the consequence
of Margaret Thatcher’s views on public spending which includes medical
service, social spending, education and R&D. “The Iron lady” argued that
“if our objective is to have a prosperous and expanding economy, we must
recognise that high public spending kills growth of industry”, as money is
taken from the productive sector (industry) to be transferred to
unproductive part of it. As a result in the 80’s only 6% of Britain’s
labour had a university degree against 18% in America, 13% in Japan and 10%
in Germany. Technical education has always been compared with Britain’s
major competitors. According to government study “ mechanical engineering
is low and production engineers are regarded as the Cinderella of the
profession”. Very few school leavers received vocational training. Since
1980’s among university graduates the tendency has been to go from the
civil service to merchant banking, rather than industry. And according to
analysts resulted from the long-standing cultural roots. Public school
leavers considered themselves “gentlemen” too long to adjust fast to the
changes of time. Efforts are now taken by the labour government to boost
technical and enterprise skills in schools. The 1999 Pre-budget report
outlined a 10 million pounds for the purpose.
Despite the favourable effect of “Thatcherism” Britain’s economic problems
in the 1990s seemed to be difficult. Manufacturing was more efficient but
Britain’s balance of payments was unhealthy, imports of manufacturing goods
rose by 40%, and British exports could hardly compete with those of its
competitors. Car workers in Germany, for instance, could produce a Ford
Escort in help the time taken in Britain. In the 90’s among the European
countries British average annual productivity per worker took the 6th
place. The revenue softened the social problems but distracted Britain from
investing more into industry. Many analysts thought that much more should
have been invested into engineering production, managerial and marketing
before the North Sea oil declined.
The Labour government undertakes to improve the situation. In his Pre-
budget report on 9 November 1999 the Chancellor of the Exchequer Gordon
Brown set out new economic ambitions for the next decade. Under them
Britain will raise its productivity faster than its competitors to close
the productivity gap and a majority of Britain’s school and college leavers
will go on to higher education.
In the 80s British companies invested heavily abroad while foreign
investments in Britain increased too. Today in a speech in Tokyo on 6
September1999 the Foreign Secretary Robin Cook said that “Britain is a
chosen country for more investment from Japan than anywhere else in Europe
and more than thousand companies operate in the U. K.”
Mr. Cook added that the huge European Market of 370 million people was “the
largest single market in the world, a market that is set to expand even
further with the arrival of new member states”. In fact he said investment
in Britain is the highest bridge into Europe.
Britain as a world leader in “high-tech” industries
One of the three British microprocessor producers was making 70% of British
silicon wafers required for new information technology even in the
seventies. On Nov.3.1999 Techmark, a new technology market, was launched at
the London Stock Exchange. According to Gordon Brown, Chancellor of the
Exchequer, Techmark will be the London Stock Exchange “market within a
market” for innovative technological companies.
The specialised institutions are agencies created to meet the needs of
specific groups of borrowers mostly industrial and commercial - which are
not adequately covered by other institutions. They operate in both public
and private sectors. In general they offer alternative funding to that
provided by banks and building societies. Some of them were set up with
Government support and with financial backing from banks and other
financial institutions. Some public sector agencies offer financial support
to industry in Scotland, Wales, and Northern Ireland.
The main private sector institutions are finance houses and leasing
companies, factoring companies, finance corporations and Venture Capital
Companies.
Finance houses are major suppliers of hire-purchase finance for the
personal sector of short term credit and leasing to the corporate sector.
Leasing companies buy and own equipment required and chosen by businesses
and lease it at an agreed rental rate.
Factoring companies provide cash for a company in exchange for the sums
they owe. A factoring company buys up a client’s invoices as they arise and
finances up to 80% of the value of the invoices; the rest is paid after a
period, after deduction of administration and finance charges.
Finance corporations meet the need for medium and long term capital when
such funds are not easily or directly available from traditional sources
such as the Stock Exchange or banks.
Venture Capital Companies offer medium term and long term equity financing
for new and developing businesses when such funds are not readily available
from banks and other traditional sources. The British Venture Capital
Association has 103 full members, which make up over 99% of the industry.
Financial markets is a collection of sophisticated securities, futures and
options the money market, the euro currency market, Lloyd’s insurance
market, the foreign exchange market and markets in bullion and commodities.
The Stock Exchange
The origin of the London Stock Exchange goes back to the coffee houses of
the seventeenth century where those who wished to invest or raise money
bought and sold shares in joint stock companies. Brokers later opened their
own subscription Economy of the country has been directed through the City
which is the nerve center of the national finance. The greater part of the
country’s income comes from invisible exports - operations originating from
the City and flowing through its channels.
A large proportion of Britain’s wealth has been invested by the City
overseas. A number of banking institutions have their head offices in
Britain but operate mainly abroad in particular regions such as Latin
America or East Asia through extensive branch networks. The major bank in
this sector is Standard Chartered. This shows how the City of London
expands its activities beyond the country’s borders; the same goes for the
influence of the London Stock Exchange and Commodities Exchanges
(particulars of the City of London as a financial center will be dealt with
in Chapter three).
Chapter 3.
The City of London as a Financial Center, its Main Institutions.
There has been a long tradition in Britain of directing the economy through
the great financial institutions together known as “the City”, which until
1997 were located in the “Square Mile” of the City of London. This remains
broadly the case today, though the markets for financial and related
services have grown and diversified greatly.
Banks, insurance companies, the Stock Exchange, money markets, commodity
shipping and freight markets and other kinds of financial institutions are
concentrated in the solemn buildings of the City and beyond its borders.
The City of London is the largest financial center in Europe. London is
also the world’s largest international insurance market and has the biggest
foreign exchange market.
Britain’s financial service industry gives about 6.5 % of its gross
domestic products (GDP) and contributes some 35 thousand million pounds a
year. The largest contributors are banks, insurance, institutions pension
funds, and securities dealers. To help Britain’s financial services to
respond to the competition and at the same time to protect the public
investment, the Government introduced 3 pieces of legislation to supervise
financing the industry: the Financial Services Act (1986), the Building
Societies Act (1986) and the Banking Act (1987). Under these acts
investment businesses need to be authorized and they have to obey rules set
in the legislation. The main responsibility to supervise were the Bank of
England, the Building Societies Commission, the Treasury and the Department
of Trade and Industry. The Serious Fraud office was set up to investigate
and prosecute significant and complex fraud.
The Bank of England.
The Bank of England was established in 1684 by Act of Parliament and Royal
Charter as a corporate body. Its entire capital stock was acquired by the
Government under the Bank of England Act in 1946. It is the heart of the
City of London and Britain’s central bank. The Bank’s main functions are to
execute monetary policy, to act as banker to the Government, to issue
banknote and to provide central Banking facilities
for the banking system that is the Bank is responsible for the financial
system as a whole; it is “lender of last resort”. The Bank’s main objective
is to support the Government in achieving low inflation. Unlike some other
central banks the Bank can not act independently of the Government.
Decisions on changes in the interest rates are taken by the Chancellor of
Exchequer. The Bank’s role is to advise the Chancellor and to carry out his
decisions. The 1999 (November) interest rate was 5.5%.
As banker to the Government the Bank of England is responsible for managing
the National Debt. It has the sole right in England and Wales to issue
banknote. The note issue is no longer backed by gold but the Government and
other securities. The Scottish and Northern Ireland Banks have limited
rights to issue notes and those must be fully covered by holdings of the
Bank of England notes. Coins can be provided by the Royal Mint.
The Bank of England can influence money market conditions through discount
houses. If on any day there is a shortage of cash in Banking system, the
bank relieves the shortage either by buying bills from the discount houses
or lending directly to them.
The Bank of England is responsible for supervision of the main wholesale
markets in London for money, foreign exchange or gold bullion.
On behalf of the Treasury the Bank manages the Exchange Equalization
Account (EEA). Using the resources of EEA the Bank may intervene in the
foreign exchange markets to check undue fluctuations in the exchange rate
of sterling.
Discount Houses.
The Discount Houses are unique to the City of London (and to Britain as a
country). They occupy the central position in the British monetary system.
They act as intermediaries between the Bank of England and the rest of the
banking sector promoting an orderly flow of funds between the Government
and the banks. In return for acting as intermediaries the discount houses
have privileged daily access to the Bank of England as “lender of last
resort”.
Banks.
Banks in Britain developed from the London gold miths of the 17th century.
By the 1920s and the 1930s there were five large clearing banks with a
network across the country. In February 1996 there were 539 institutions
authorized under the Banking. Act of 1987. In British banking retail banks
should be described as dominant.
Retail banks primarily serve personal customers and small to medium-sized
businesses. They operate through more than 11.350 branchers offering cash
deposits withdrawl facilities and systems for transferring funds. They
provide current accounts, deposit accounts various types of loan
arrangements and a growing range of financial services.
The main banks in England and Wales are Barklays, Lloyds, Midland, National
Westminter and the TSB group. The major Scottish banks are the Bank of
Scotland, Clydesdale and Royal Bank of Scotland.
With a relaxation of restrictions on competition among financial
institutions major banks have diversified the services they provide. They
have lent more money for house purchases, have more interests in leasing
and factoring companies, merchant banks, securities dealers, insurance and
trust companies. They provide low facilities to industrial companies ands
now support a loan guarantee scheme under which 70% of the value of loans
to small companies is guaranteed by the Government.
Plastic card technology has revolutionized cash transfer and payments
systems. There are around ninety two million plastic cards in circulation
in Britain. There are different types of cards but they often combine
functions. Cards can be used overseas too to obtain cash from bank ATM (
Automated Teller Machines). Cash machine cards have greatly improved
customers’ access to cash. All retail banks and building societies
participate in nation wide networks of ATMs. About two thirds of cash now
is obtained through Britain’s twenty one thousand ATMs. .A lot of them are
located different places at supermarkets, for instance.
Many banks offer electronic payment of cheques, telephone banking, under
which customers use a telephone to obtain account information, make
transfers or pay bills. Other innovations include computer-based banking
(through home computer) services over Internet and video links.
Merchant banks.
The traditional role of merchant banks was to accept bills of exchange, to
provide funds for trade and also to raise capital to British companies
through the issue of bonds and other securities. These activities continue,
but the role of Britain’s merchant banks has diversified enormously in
recent years. Although they are called “banks” they are more involved in
providing a range of professional services, such as corporate finance and
investment management, than in lending money.
Building societies.
Building societies are mutual institutions owned by their savers and
borrowers. They have traditionally concentrated on housing finance, long-
term mortgage loans against property - most usually houses purchased for
occupation. Services have been extended into other areas, including
banking, investment services and insurance. The Societies are one of the
main places were people deposit their savings - around 60% of adults have a
building society saving accounts. Building societies offer a variety of
accounts with interest rates related to the time for which a saver is
prepared to tie up his money. So they are major lenders for house
purchases. Four of the largest Societies are planning to become banks. The
largest Societies, the Halifax, Abbey National and Nationwide owe 45% of
the total assets of the movement.
National Savings Bank.
The National Savings Bank is run by the department of National Savings. It
provides a system of depositing and withdrawing savings at twenty thousand
post offices around the country or by post. The National Savings Bank does
not offer lending facilities. Its deposits are used to finance the
Governments public sector needs.
Investing Institutions.
The investing institutions are those which collect savings and invest them
into securities market and other long-term assets. The main investment
institutions are insurance companies, pension funds, unit trusts and
investment trusts. Together they make a vast resource of funds which are
invested in securities and other assets. They own around 58% of British
shares. The British insurance industry is highly sophisticated and serves
millions of policyholders in Britain and overseas. Policyholders include
governments, companies and individuals. The British insurance is the forth
largest in the world and in proportion to its GDP is the highest in any
country. There are 2 broad categories of insurance: long-term insurance for
many years, such as life insurance, permanent health (medical) insurance;
and general insurance for a year or less, which covers risks of damage,
such as loss of property, accidents and short-term health insurance. In
1995 there were about 830 authorized to carry on insurance business in
Britain. The industry as a whole employs some 207.000 people, plus about
126.000 are employed in activities related to insurance.
Lloyd’s is an incorporated society of private insurers in London.
Originally it dealt with marine insurance. Today it deals with other
classes of insurance, today it deals with other classes of insurance. Long-
term life and financial guarantee business is not covered. Insurance
brokers as intermediaries are a valuable part of the insurance market.
Lloyd’s insurance brokers play an important role in the Lloyd’s market.
Institute of London Underwriters was formed in 1984 as an association for
marine underwriters. Today it provides a market where member insurance
companies transact marine, energy, commercial transport and aviation
insurance business. The Institute issues combined policies in its own name
on risks which are underwritten by member companies. About half of the 58
member companies are branches or subsidiaries of overseas companies.
Pension Funds.
Pension Funds collect savings Pension Funds collect savings from
occupational pension schemes and personal pension schemes. Pension
contributions are invested through intermediaries in securities and other
investment markets. Pension fund have a become a major force in securities
markets because they hold about 28% of the securities listed on the London
Stock Exchange. Total Pension fund assets are very big. To protect them the
Pensions Act was introduced in 1995 to increase confidence in the security
of the funds.
Investment trusts and unit trusts.
Both investment trusts and unit trusts offer investors the opportunity to
benefit from pools investments, although their respective structures are
somewhat different. Assets have grown considerably in the
|
