Easy money

The Bankers' Clearing House

The procedure for making payments by cheque creates problems when the person making the payment keeps his account in a different bank from that which holds the account of the person receiving the pay­ment. The final settlement of the debt will require a movement.of funds from one bank to another. In any one day there will be many thousands of such inter-bank transactions to be earned out; many of them will offset each other. There will be a large number of cheques drawn on accounts in Bank A payable to accounts in think 15, bin there will also be many cheques requiring a transfer of funds in the opposite direction.

Each separate bank in a multi-bank system will find itself in this kind of situation at the end of the day. It is an obvious solution for each bank to pay (or receive) the net amount owing after the banks have totalled their, claims against each other. This is the function of the Hankers' Clearing House. Cheques drawn on one bank but payable to another are sent to the clearing house where the mutual claims are offset and the banks merely settle the outstanding amounts. These payments from one bank to another are carried out by means of cheques drawn on the bankers' deposits at the Bank of England. It is important to note, however, that when one bank makes a payment to another bank, one bank loses cash and the other gains cash. The reason for this, of course, is that the deposits at the central bank arc part of the banks' cash reserves.

XII. Read and translate the following text:

Andrew Buxton, chair­man of Barclays, ought to have looked a troubled man as he presented his bank's annual results last week. In the last year, Barclays had lost a chief executive, dropped £205m on rash trading in the bond markets, another £153m on bad loans to Russian customers, and had let its operating costs run out of control.

Yet Barclays somehow managed to make profits of £1.9bn.

In the same year, Lloyds TSB reported a 14 per cent increase in its pre-tax profits to £3.29bn, equivalent to an after-tax return on shareholders' equity of 33 per cent. And other British banks made similar profits.

So where do these profits come from? And why have they not been lost to the competition from other institutions?

The first part of the answer lies in the condition of the UK econo­my at large. In principle, bank profits are built for the most part on the volumes of loans they make and the deposits they collect; the margins between the interest rates for these two sides of their balance sheet gives them their profits (or losses). But in a mature market such as the UK, it is hard for a very large hank to expand loan and deposit volumes much beyond the level of the economy as a whole, and even harder to widen net Interest margins.

The biggest factor in bank prof­its has therefore been the level of bad debts. In 1992, when banks' accounts showed the worst of the effects of the last UK recession, the seven principal banks set aside £6.45bn of bad debt provisions between them. Last year, the total for the same group is estimated to have been around £2.6bn.

The other side of British banks' profitability reflects an interplay between technology-based effi­ciency gains and customer inertia.

Banks have become more effi­cient over the past decade, strip­ping out costs as new computer systems and telecommunications networks have enabled them to set up industrial-scale processing plants for tasks that used to be handled by clerks in the back of each branch.

Branches are expensive to run, and the network has been whittled down from a peak of 21,800 branches in 1985 to around 15,000 today. Each branch, too, has fewer staff.

One of the most frequent com­plaints is the disappearance of the human touch in the bank branch. Yet customers have reaped most of the benefits of the banks' efficien­cy gains - cash dispensed at the touch of a button by machines, instant account balances, trans­fers and even loans available over the telephone.

However, British banks remain years behind their French rivals in electronic banking. Nor is the UK's money transmission system the most consumer-friendly in the world. Customers in New Zealand and Canada get deposits credited instantaneously, while in the UK they must wait days.

Competition in financial services has been steadily increasing since the 1980s. Yet the British consumer is more likely to swap a wife (or husband) than a bank. With such undemanding cus­tomers, leading banks could have years of fat profits ahead of them.

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