The Clearing System.— The system of col lecting checks and settling balances owing be tween bankers, though to the uninitiated it may appear merely an administrative detail, has, in reality, exercised a very important influence on banking development in England. The problem of clearing checks is comparatively simple compared with the problem as existing in the United States or any other coun try occupying a large geographical area, because practically every English bank or branch bank is within a day's post of Lon don. Consequently although local checks are cleared through local clearing houses in some of the larger towns, the great mass of checks is cleared through the London clearing house, and this fact has very much accentuated the centralization of banking in London, which is the predominant characteristic of the English system. A seat in the clearing house is a privilege jealously guarded and difficult to ob tain, and it was not until 1854 that any of the joint-stock banks were admitted. Those banks which do not possess this privilege anpoint a clearing agent, with whom an account is kept and who in many cases acts generally as the London agent. By the rules of the clearing house every clearing bank must keep an account with the Bank of England, and the daily differences are settled by means of transfers to and from these various accounts and a central account called the clearing bankers' account.
The total amount of the checks and other articles cleared through the London bankers' clearing house in 1913 was i16,436,404,000, being the highest total recorded in the history of the house. The number of banks possessing seats in the clearing house is now 17, inclusive of the Bank of England.
The Money The London money market is the name given to the miscellaneous body of persons who borrow or lend money for short periods, their operations being roughly grouped around Lombard Street, Threadneedle Street, and the adjoining part of the city of London. The money in which they are in terested is sometimes described as the short loan fund of the money market. On the one hand is the borrowing portion of the market, consisting largely of the bill brokers, the stock exchange and an undefined group of financiers; on the other, the Bank of England, which is closely connected with the money market, and which, owing to its position as the guardian of i the ultimate cash reserves, is also the ultimate lender when money cannot be easily borrowed elsewhere. In between these two extremes are the clearing banks and other banks having Lon don offices, as well as various financial firms, whose surplus unemployed assets form the principal part of the short loan fund.- The British government also plays a very important part as a borrower in the money market, and the government of India, through the India council, lends 1 .gely to the market. Besides
these, there is a group of foreign banks with London offices which exercise a growing in fluence in the market, both as borrowers and lenders.
The index to the general condition of the market is the hank rate, which is the official minimum rate at which the Bank of England discounts first-class bills offered to it. All bills so offered for discount must mature within not more than three months and must be accepted payable in the United Kingdom and bear one other English signature. The Bank of England is actuated in fixing the amount of the bank rate by the state of the reserve and the prospects of an inflow or outflow of gold, and speaking generally, the bank is interested in keeping the rate as high as expediency will allow. The borrowing portion of the market is naturally anxious to keep the rate as low as possible. If, however, there is plenty of money to be lent outside the Bank of England, the bank rate cannot be effectively maintained at a much higher figure than the market rate, otherwise it would be merely nominal. Therefore, the other London banks to a large extent hold the balance between the Bank of England and the borrowing portion of the market. They are actuated on the one hand by the necessity of employing as large a proportion of their sur plus assets as prudence will allow, and on the other by the responsibility of keeping reserves well above the margin of safety. The relations of the Bank of England to the other banks are of the utmost importance and interest It is possible 'that in seasons when money is plenti ful, the enormous floating balances available for employment in the money market may ex pose the Bank of England to the danger of a drain of gold. This risk is accentuated by the fact that the funds controlled by the joint stock banks are far larger than those of the Bank of England. The bank must, therefore, be able to control the market rate should neces sity arise, and it must do this by itself coming forward as a borrower (mostly through a broker) and by offering such a rate as to divert the loanable funds of the other banks away from the market. The latter, thus being denuded of funds, is driven to the Bank of England.
The Gold London is recognized as the world's central market for gold and yet her reserve stock of the metal is, notwith standing the enormous volume of her financial dealings, at time actually less than that of her principal rivals. It is one of London's most cherished traditions that she puts no obstacles in the way of the export of gold, except making it more worth the while of its owners to keep it there. It may be mentioned that more than 60 per cent of the annual production of the world's gold is derived from British possessions.