The financial sector is among the most successful in the British economy and the City of London is the world’s leading international finance centre. There are many reasons for this success:

But it is nevertheless important to it to identify and, if possible, to anticipate weaknesses and competitive threats. Providers of financial services need to be efficient and competitive if they are to make an important contribution to national income and employment in their own right. The Bank plays a key role in monitoring the City’s development.

Of course, not all of the challenges that face the City are within the Bank’s power to address. But some are. One important issue, for example, has been to improve the security of payment and settlement arrangements which are a vital element in the stability of the banking system. The Bank is part of the money clearing system in which the final settlement of interbank claims is achieved. Together with the major banks, the Bank has introduced real time gross-settlement which reduces risk and increases efficiency in the UK’s domestic large-value payments. The Bank has also tried to ensure that the settlement systems keep pace with the rapid growth of securities following the “Big Bang” in 1986. For example, the Bank now provides the Central Gilts Office service to facilitate paperless settlement and payment for the vast majority of gilt-edged transactions and a Central Money Markets Office to increase the security and efficient settlement of money market transactions. The Bank has also taken a close interest in the development of settlement systems in the futures markets and has been responsible for designing and building the equity settlement system called CREST, which replaced the previous Stock Exchange system in 1996.

The Bank is also concerned that the City should provide an efficient service to domestic industry, particularly in the way in which savings are channelled to industry through markets and the banking system. It may be involved from time to time in discussion between banks and their corporate customers in the case of immediate liquidity difficulty and has agreed with the banks some general principles to apply in handling such cases. But its broader concern is with the contribution that financial institutions make to effective and constructive provision of finance to industry.

Reproduced by kind permission of the Bank of England