Other British banks

This group comprises around 150 different institutions, with assets totalling £ 62bn in April 2000. Given the size of the group, it is not surprising that it constitutes a rather disparate range of institutions. Having said that, a sig­nificant proportion of the group's activities are overseas, stemming from the fact that many of these banks originated when the UK was a major colonial power and banks were needed to service the needs of companies and indi­viduals with dealings in the colonies. This need has declined, but banking services are still required within the former colonies and the status of London as a major financial centre has meant that it has been appropriate for these banks to retain their base in Britain.

Other banks in this group include wholesale banks that provide corporate banking services on a regional basis or that specialise in services to particular industries, and former finance houses that have taken on full banking status.

Overseas banks

The overseas banks represent the largest group of banks within the UK Finan­cial system, totalling around 350. Their dominance in numbers is matched by their assets, totalling almost £ 100bn, (about 10 times the size of the British wholesale banks) as at 30 April 2000. They have exhibited very rapid growth since the early 1970s, in terms of both assets and numbers.

The overseas banks came to London originally to meet the business require­ments of firms in their own countries. While they still perform that function. they are now important participants within the eurocurrency markets, and as such facilitate tlie taking-up of deposits from a wide range of sources and the financing of a wide range of different projects, with their activities no longer particularly related to their home countries. London's status as the major centre of eurocurrency market activity has facilitated this develop­ment and made it necessary for a bank of any size, wherever it is based in the world, to have a London office.

In addition to these wholesale banking activities, many overseas banks have moved into other areas of activity. This has in some cases included retail financial services, and in other cases has, as a consequence of the deregula­tion of the capital markets, included market-making and stockbroking activities. Some of the overseas banks have become major investment banks.

I. Key terms

Acceptance	- акцепт - agreeing to honour the Bill of exchange by extension the document itself;
Bill of exchange	- вексель - an order in writing addressed by one person to another and signed by the person giving it, requiring the person to whom it is addressed to pay, on demand or at a fixed date, a specified sum of money. The bill is made out by the signatory (the drawer) always with the consent of the person to whom it is addressed, who signs or accepts it;
Drawer	- трасант - the party that presents a cheque or other bill of exchange for payment;
Underwrite	- гарантувати - to guarantee to buy or find buyers for all or part of the issue of a security. Normally done in return for a fee by a bank or group of banks to ensure sale of any part of an issue not bought by the public to which it is directed;
Contingent liability	- позабалансовий пасив - off balance sheet liability;
Derivative	- похідні; дериватив - a general term for futures, options and swaps, i.e. instruments derived from conventional direct dealings in securities, currencies and commodities;
Certificate of deposit	- депозитний сертифікат - a negotiable claim issued by a bank in return for a term deposit. The document is normally a bearer security. The advantage of the CD to depositors is that the latter can place their money in a fixed-term or long-term maturity deposit, so obtaining a higher rate of interest while knowing that they can sell the CD in the secondary market whenever they may need to recover the money;
Investments	- інвестиції - 1) the act of placing monetary resources into the creation of assets, in the manufacturing and services sectors of the economy. Only real capital formation, such as the production of machinery, adds to the stock of investment goods; 2) the act of placing monetary resources into financial assets, namely the purchase of shares and bonds. Shifting money from a bank account to securities in this way simply moves from one form to another; 3) the sum of money itself so invested, or the total of financial assets so acquired;
Overseas banks	- зарубіжні банки - 1) banks operating in the UK but foreign controlled; 2) UK owned banks that conduct their business mainly abroad;
Solvency	- платіжеспроможність - the ability to pay one’s debts in full on the due date;
LIBOR	- Лондонська ставка пропонування за міжбанківськими депозитами - the rate of interest offered on loans to first-class banks in the London interbank market for a specified period (usually three or six months). Owing to the heavy volume of interbank dealing, the three-month and six-month rates have come to be widely used as a basis of reference for the setting of many other interest rates. It is closely related to base rate but is closer to prime rate in US terms. The rate may apply to sterling or eurodollars;
Negotiable	- ті, які вільно обертаються - 1) subject to agreement between the parties involved in transaction; 2) a negotiable instrument, e.g. a crossed cheque or bearer share, is one in which the title of ownership is transferred freely from hand to hand; 3) the propensity of a financial claim, e.g. bill of exchange, certificate of deposit, Treasury bill or bond, to be traded in financial markets, e.g. in the money market. The term is interchangeable in this sense with transferable and marketable;
Letter of credit	- акредитив - a non-negotiable order from a bank to a bank abroad, authorising payment to a named person of a particular sum of money or up to a limit of a certain sum;
Standby letter of credit	- резервний (гарантійний) акредитив - a commitment under which a bank agrees to provide funds to a customer where no goods are involved;
Custodian services	- послуги заощадження, зберігання - services dealing with keeping valuables or managing the assets of investment trust.

II. Answer the following questions:

1. What is an 'acceptance'?

2. List the main areas of activity currently undertaken by British merchant banks.

3. Why have many British merchant banks felt it necessary to reappraise their strategy in recent years?

4. What types of activities are undertaken by 'other British banks'?

5. How important are overseas banks within the UK Financial system?

6. Examine the main types of activities undertaken by the overseas banks in the UK.

III. Find in the text the following words and word combinations and translate the sentences in which they are used:

underwriting role; acceptance; short-term corporate finance; bill of exchange; non-intermediary service; upon maturity; contingent liability; reputable bank; default risk; management consultancy services; foreign exchange market; eurocurrency market; derivatives market; unit and investment trusts; capital markets; specialist market niches; regional basis; market making activities; stockbroking activities; disparate range of institutions; mergers; takeovers.

IV. Fill in the blanks:

investment; service; supported; alliances; raised; assets; development; engagement; longer-term; directions; corporate; proportion; accepting; certificates; merchants; banking; creditworthiness; borrowers; underwriting; thrust; adjunct to; finance; management; advantage; medium-term; activities

Many British merchant banks originated as _____ in the nineteenth century, developing banking services as an _____ their merchanting business. Since the main _____ of their banking services was the business of _____ bills, they acquired the name "accepting houses." Their knowledge about their trading areas gave them a distinctive _____ in evaluating the _____ of potential _____ abroad in the early days. With diversification in business over the years, today they deal primarily with the _____ sector and engage in wholesale _____. Their primary sources of funds are time deposits and _____ of deposit (CDs), whereas on the _____ side they mainly concentrate on _____ lending. Unlike commercial banks, early on they were engaged in _____ financing such as _____ financing. For example, for the development of the Americas, British colonies, and other developing territories, which were _____ by some £3.6 billion between 1870 and 1913, about 40 percent of loans were _____ by London accepting houses. Reflecting their heavy _____ in international banking, their foreign-currency-denominated assets are about 30 percent of total assets, twice as large as the _____ for retail banks.

Nonetheless, their major contribution to corporate _____ comes from their _____ banking activities, _____ not only sterling securities but also Eurocurrency bonds and equity. For the last few decades, they have diversified their _____ in a number of _____ including investment fund _____, merger and acquisition _____, factoring, leasing, as well as the formation of _____ with stockbroking and stockjobbing firms.

V. Rearrange the following sentences to make up a coherent and logical text about other British banks. The first sentence is given to help you:

Other British banks (ISO)

Included in this group are subsidiaries of the clearing banks specializing in international, merchant, and wholesale banking. Funds are used for medium-term loans, installment loans, mortgage loans, international loans, etc., depending on their specialized field. In addition, among the offshore banking institu­tions in the Isle of Man and the Channel Islands (such as Jersey and Guernsey), those British institutions which opted to submit their returns to the Bank of England are included. They acted as efficient allocators of financial resources between different geographical locations and functioned as central banks of British colonies in the past. Also included are finance houses, now authorized as banks, and British overseas banks such as Standard Chartered Bank. Despite the large number of banks, their market share in the banking industry is relatively small, only 4.4 percent. British overseas banks are those which have their head offices in London but their branches located outside the UK, mainly in the UK's old colonies. Subsidiaries of the clearing banks and finance houses depend heavily on interbank and CD markets for their funding needs.

VI. Prepare a brief summary of the text:

In Bank of England statistics, the domestically-owned banks which are not retail banks are divided into two groups: British merchant banks and other British banks. The former group is comprised of large and often old-established institutions that, as well as providing banking services for a limited range of companies and wealthy individuals, act as advisers on corporate finance; in particular they tend to be involved with mergers and acquisitions. It includes well-known names such as Rothschilds, Warburgs and Barings.

The banking business of the British merchant banks is composed largely of wholesale banking-dealing with large corporate clients and operating in the short-term money markets. Their retail business is small and only a minority of such banks have offices in mainland Britain outside London. It can be seen that approximately one-third of deposits are in currencies other than sterling. Nearly 20% of all deposits originate abroad and over 30% of all deposits are derived from the interbank markets. Correspond­ingly, on the assets side of the balance-sheet, much lending is through the various money markets. Large sums are lent on the domestic interbank market and a large amount is lent abroad, much of it to banks abroad. Direct advances to non-bank customers represent a smaller proportion of total assets than in the case of the retail banks. Eligible liabilities are relatively low.

Merchant banks also undertake a number of other financial activities. They act as issuing houses; that is to say, they act for companies wishing offer shares to the public and make all arrangements necessary including drawing up the prospectus, receiving applications for shares and making ^the initial allotment. They also act as fund managers and manage the investments of wealthy individuals, companies, pension funds, etc. Many run unit trusts, and a number are prominent as financial advisers, notably in the field of corporate mergers and takeovers.

The category of "other British banks" comprises a large number of banks of varying origins. Some are specialized subsidiaries of other financial insti­tutions, some have more the characteristics of a charitable trust but are obliged to register as banks in order to be able to accept deposits. But for many the main business is that of a finance house: raising money in the wholesale markets and lending to industry, for the purchase of capital equipment, and to persons, for the purchase of consumer durables. Many of these banks are relatively small.

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