Реферат: The City of London and its role as a financial centre

·    The world’s second largest fund management center, after Tokyo.

·    One of the world’s biggest markets in financial futures and options.

·    One of three largest international bond centers in the world.

Britain’s international role in the world monetary and financial fields became particularly in the late 1980s.

Deregulation has been the main catalyst in increasing the City’s role as an international financial center. Fundamental reforms of 1986, known as Big Bang affected the London Stock Exchange tremendously, because any foreign financial institution can now participate in the London money market. “What we were trying to do”, in the words of a former Deputy Chairman of London Stock Exchange, “ was to create a new market, not one just oriented toward the UK, but one that can become international”. It was intended to secure London as the leading financial center of Europe, and the third in the world alongside New York and Tokyo.   

Many foreign banks and finance houses tried to profit from the deregulation, some by direct competition and others by buying long-established City enterprises. Before the Big Bang all  City stockbroking firms were British. By 1990 one hundred fifty four out of four hundred and eight were foreign owned. The main investors in British stockbroking are the United States, Japan and France (also see Chapter 2, The Stock Exchange).

British banks, insurance companies, building societies, and other money lenders often prefer to invest in other areas, rather than industry, in contrast with Britain’s competitors, for example Germany and Japan, where the level of industrial development is higher.

Britain strongly supports the removal of national regulations and exchange controls which restrict the creation of common market in financial services. London is a major center for international banking. Altogether five hundred sixty one foreign banks are represented in Britain. They employ about 40.000 people and provide different services in many parts of the world.

Japan and the United States are the two countries with most banks represented in London (see the table attached). Assets/liabilities of overseas banks in Britain have doubled in the last ten years. Overseas banks have a very high proportion of their operations in foreign currency.

Since the end of 1920s the Moscow Narodny Bank has been operating in London to deal with transactions with the Soviet Union and Russia now.

A number of British banks have their head offices in Britain but operate mainly abroad. Standard Chartered is the major bank in this sector: it has a network of over 600 offices in more than 40 countries and employs over 25.000 people. Standard Chartered’s activities are concentrated in Asia, Africa and Middle East.

British banks are developing innovative banking services in their overseas operations. For example Standard Chartered has opened the first fully automated branches in Hong Kong and Singapore. Satellite dishes have been installed in Barclays’ branches in Zimbabwe

London and Tokyo are the main world centers for eurocurrency dealings. The euromarket  began with eurodollars - US Dollars lent outside the United States - and now has developed into a powerful market of currencies lent outside their domestic marketplace. Transactions can be carried out in eurodollars, eurodeutschmarks, euroyen, and so on. So, euroloans are short-term trances (three to six months) given by banks at the LIBOR rates. Eurobonds are issued for periods of five to twenty years in currencies other than that of the issuing country.

The London International Futures Exchange trades on the floor of the Royal Exchange building. Over 200 banks and other financial institutions, both British and foreign, are members of the market. In fact over 70% are overseas-owned. They make contracts in British, German, Italian, and Japanese Government bonds.

In 1995 LIFFE announced new linking agreements with the Tokyo International Financial Futures Exchange and Chicago Board of Trade. In 1996 LIFFE merged with the London Commodity Exchange, which is Europe’s primary market for trading futures and options contracts in cocoa, coffee, sugar, wheat, potatoes.

Anyone may deal in gold but, in practice, dealings are largely concentrated in the hands of five members of the London gold market. Around 60 banks and often financial companies participate in the London gold and silver markets. Trading is done by telephone and electronic communications links. The five members of the London Bullion Market Association meet twice daily to establish a London fixing price for Gold and this price is a reference for world-wide gold dealings.

Chapter 5.

Recent Financial Institutions (the London Club, Britain in the IMF, British Banks in Russia).

The International Monetary Fund (IMF) and the London Club can not be properly described as recent institutions but it is important to note their recent activities in the light of the financial problems in Russia.

The IMF was founded in 1944 to secure international monetary cooperation and stabilize exchange rates. Operating funds are subscribed by member Governments according to the volume of their international trade, their national income and their international reserve holdings. Members with temporary difficulties in their international balances of payments may purchase or get credits form the IMF of the foreign exchange they need at fixed rates if they meet the required conditions. Russia applied to the IMF for credits.

Great Britain plays an important role in the IMF. On the 10th of September 1999 the Сhancellor of the Exchequer Gordon Brown was appointed to the Interim Committee of the IMF. The Committee was established in 1974 to advise the IMF on the management of the international monetary system as well as on dealing with any sudden shock to the world money system. The Chancellor will lead discussions on the reform of the Interim Committee after the proposals of the G7 Finance Ministers.

There will be also discussions on reforms to involve the private sector in presenting the world financial prices. It is the aim of IMF to relieve third world debt to avoid large-scale financial crises.

Among the recent developments it is important to mention the choice of London as the location of NASDAQ-Europe. In his speech on the 5th of November 1999, the Chancellor of the Exchequer Gordon Brown it was excellent news for the City of London to launch a joint venture to create a pan-European security market.

Gordon Brown said: ”NASDAQ’s  decision to locate its European exchange here represents a massive vote of confidence in the City. NASDAQ - Europe will strengthen the UK financial services industry and reinforce London’s position as one of the worlds’ top international financial centers”. Mr. Brown added, “NASDAQ’s presence here will be good for the wider economy too, not just in the UK but Europe as a whole. Job creation and economic growth depend on efficient capital markets sending funds to businesses to finance their expansion”.

An important move in the European monetary life was the introduction of a single European currency, the Euro, on the 1st of January 1999. A separate protocol recognizes that Britain is not obliged to join the currency without a separate decision by British Government and Parliament.

So far the Bank of England has not voted to adopt the single currency. On the 6th of September 1999  Mr. Cook , the Foreign Secretary, stated that if the Euro proves to be a success, it would be in Britain’s interest to join it. Britain will first have to test whether there is enough flexibility in British  economy and if the Euro will promote strong international investment and boost British financial services industry.

According to the decision of European Union (EU) Heads of Government single currency notes and coins will be introduced at the beginning of 2002 at latest.

The London Club set up in the 1980s under an agreement in London, comprises over 600 big commercial banks whose credits are not covered by government guarantees or insurance. There is a steering committee of the Club which operates between the Club’s sessions.  The Sessions are held at the request of the debtors in different cities of the world.

After the collapse of the USSR, the Soviet Union bank for Foreign Economic Affairs owed the London Club a total of over 32 Bln Dollars. Under the latest decision on restructuring the Russian debt it was agreed in February 2000 that the debt would be restructured. Nearly one third of the total amount will be written of and Russia will be allowed to have a grace period of seven years, during which it will pay only reduced interest rates on the remaining sum. In return, the Russian Government undertakes the responsibility for the debt and would be considered defaulting if it fails to meet the stated conditions.

Although the London Club is not entirely a British entity the title speaks for the significance of the city of London.

The world-wide network of British banks is not directly represented on Russian market. Operations available are carried out only through the branches of British banks based in other cities of the world.

Conclusions.

1.   Although historically the heart of the financial services sector in Britain was located in the “Square Mile” of the City of London, and this is broadly the case now, financial institutions have moved outside the area all over the country.

2.   The City of London is concentration of British financial power which makes London an angle of the New York-Tokyo-London triangular.

3.   Though Great Britain is still a leading industrialized nation and a member of G7 group it real power and international influence centers around its financial activities.

 

 

 

Reference list.

1.David McDowall, Britain in close-up/Longman Singapore Publishers Pte Ltd.

2.Britain’s Banking and Financial Institutions/Reference Services, Central Office of Information, London.

3.   Angela Fiddles, The City of London (the historic square mile).

4.   Talking Points on Britain’s Economy/October 1999, December 1999. 

5.   Банковское дело, выпуск №12, 1998г.

Appendix :

Table 1 .

Net Overseas Earnings of Britain’s Financial Institutions

	Million Pounds
Banks	6,188
Securities Dealers	1,658
Commodity traders. Bullion dealers and export houses.	556
Money Market Brokers	112
Insurance Institutions	5,952
Pension Funds	2,044
Unit trusts	724
Investment Trusts	383
Fund Managers	425
Baltic Exchange	292
Lloyd’s Register of Shipping	57
Finance Leasing	40
Non-specified institutions	1,962
Total	20,393

 

Table 2.

Notes in circulation.

	Value of notes in circulation end February 1996 (million)	No of notes issued by denomination in year to end February1996 (million)
1 pound	56	-
5 pounds	1,067	336
10 pounds	5,688	575
20 pounds	8,579	326
50 pounds	3,104	43
Other notes	1,154	-
Total	19,648	1,280

Source : Bank of England.

Table 3.

Major British Banks 1995.

	Assets Liabilities (Mln pounds)	Market Capital (Mln pounds)	Staff	Branches	Cash dispensers and ATMs
Abbey National	97,614	10,765	16,300	678	1,267
Bank of Scotland	34,104	4,095	11,300	411	463
Barclays	164,184	18,407	61,200	2,050	3,020
Lloyds TSB	131,750	25,496	66,400	2,858	4,346
Midland	92,093	39,658	43,400	1,701	2,282
National Westminster	166,347	13,548	61,000	2,215	2,998
Royal Bank of Scotland	50,497	4,750	19,500	687	1,009
Standard Chartered	38,934	7,757	1,100	1	-

Figure 1.

Major Banks lending to British Residents December 1995.

Table 4.

Largest Building Societies.

Rank by Group Assets	Rank After Flotations and Mergers in 1977	Group Assets (million pounds)
1. Halifax.	-	98,655
2. Nationwide.	1	35,742
3.Woolwich	-	28,005
4. Alliance & Leicester	-	22,846
5. Bradford & Bingley	2	15,658
6. Britannia	3	14,916
7.National & Provincial	-	14,133
8.Northern Rock	-	11,559
9.Bristrol & West	-	8,589
10. Birmingham Mdshires	4	6,725
11. Yorkshire	5	6,412
12.Portman	6	3,513
13.Coventry	7	3,379
14.Skipton	8	3,037

Table 5.

Overseas Banks in Britain

(Main Countries Represented).

Country of origin	Branches of an Overseas Bank	British Incorporated Subsidiary of an Overseas Bank	Representative offices	Other	Total
France	16	8	23	-	47
Germany	19	5	4	-	28
Italy	15	1	28	-	44
Japan	28	6	15	4	53
Switzerland	9	2	17	-	28
United States	23	9	11	6	49
Other countries	153	41	111	7	312
Total	263	72	209	17	561

Source: Bank of England.

Table 6.

General and Long-term Insurance Business 1985 - 1995.

 

General Insurance net premiums.

Table 7.

Growth in Unit Trusts and Investment Trusts.

Definitions.

Assets -	anything owned by an individual, company, legal body or government which has a cash value.
Big Bang -	a system of major changes which brought deregulation to the London Stock Exchange in 1986.
Bill of Exchange -	an officially signed promise  to pay to the receiver of the bill, the stated at the fixed time.
Bond -	a certificate issued by the borrower as a receipt for a loan usually longer than 12 months; it indicates the interest rate and the date of repayment.
Eurobond-	an international certificate issued by the borrower for a long-term loan (from 5 to 15 years) in any European currency but not in the currency of the issuing bank.
Securities-	general term for stocks and shares of all types.
Exchange-	a market for the toll purchase of goods or securities.
Stock Exchange-	a market for short or long term transactions in securities .
Commodity Exchange-	a stable market for wholesale transactions in preferably commodities and raw materials
Money Market-	a market for money instruments with a period of validity of less than one year.
Factoring-	a business activity in which a company takes over the responsibility for collecting the debts of another company.
Fund Management-	managing investors’ funds on their behalf or advising investors on how to invest their funds.
Financial Futures-	legal contracts for the sale or purchase of financial products on a specified future date, at the price agreed in the present.
Option-	A contract giving the right to buy or sell financial instruments or goods for a stated period at a stated price.
The London Bullion Market -	The international gold and silver market in London where trade is done by a telephone or electronic links.
Hedge	The purchase or sale futures contract as a temporary substitute for a transaction to be made at a later date
Open-Ended Fund-	A fund without a fixed number of shares
Quite-edged loans -	Loans issued on behalf of the Government to fund its spending.