British banks are vigilant of the discount operations carried on by each firm. Should they consider that the public is overtrading, they will cease buying bills, thus checking the tendency of credit over-expansion.

The Bank of England is not ordinarily obliged to continue the purchase of all kinds of bills which may be offered, but generally does purchase all such bills which conform to the "requirements." As with the Federal Reserve banks, the Bank of England is the keeper of the nation's reserves. The deposit of the reserves of the numerous banks throughout the Empire with the Bank of England operates in the same manner in which the member banks of the Federal Reserve System keep their reserve deposits with their reserve banks. Thus balances under the English banking system are likewise immediately convertible into cash, either by withdrawals or by rediscounts of paper with the Bank of England.

Bank Of England Discount Rate

Of great influence on the London money markets and on which in a great part other money markets are affected to a considerable degree is the Bank of England rate which is made public every Thursday. This rate moves up or down primarily in accordance with the law of supply and demand.

If the demand for funds is heavy and the supply low, the bank increases its rate, which invariably forces borrowers to pay off their loans, and so tends to stop credit overexpansion. If, on the other hand, the demands are light, rates are lowered, and borrowing is thereby stimulated.