Even although it's a love, hate, need relationship, banks are as necessary to everyday living as that early morning cuppa to kick us into life each morning. We swallow a cup of tea or cup of coffee almost without hesitation or even thought. Know what I mean? You bet and it's the same with our local bank. We use it almost without thinking. But there's more to it than just the 'Good morning!' greeting and pleasant smile from the employee behind the counter.
Your bank is the base of a huge pyramid that stretches back in time and space to a single entity. So let's delve into the bank, but not the one you or I might walk into on a daily or weekly basis. We're going to be looking at 'the Bank'. Confused? Don't be. Within the financial world, 'the Bank' often usually means only one thing - the Bank of England.
It was started by a group of rich merchants more than three centuries ago and then granted a Royal Charter by William III. Then in 1946, following nationalisation, the relationship with the Crown was formalised. The Bank of England became the central bank for the United Kingdom.
There's nothing unusual about the concept of a central bank. Most countries have them. The USA has one, called the Federal Reserve, and the European Union has one, too, the European Central Bank. So what's a central bank and Why do we need them?
The answer to that is complexity - the modern economy is a many-tentacled monster, handled by the expertise that is the central bank. It has many jobs to do, including acting as banker to the government itself. The central bank also oversees the economy. And it regulates the supply of money.
Did you know that the government (of course, we're talking UK here) has its own account held at 'the Bank'? Did you also know that all of the major banks have accounts at the Bank of England, too, to deposit or obtain cash?
Thus interest rates offered by the Bank of England to depositors and borrowers - in other words, the major banks themselves - impact money market interest rates.
Such money market rates eventually feed through to me and you in one form or another, determining, for example, what we pay in interest payments for the mortgage. It'll add to the cost of a car loan, or to the cost of that computer we've just taken out on credit. Savers, too, will feel the effect, through the level of return offered on savings accounts.
Yes, 300 years old and still going strong, 'the Bank' is growing in reach, influence and relevance with each passing century. No one can argue with that!
Buying or selling a house or flat in Scotland or in the rest of the UK is a complex business. To help with houses for sale, flats for sale, or other aspects of the housing market, John Donaldson, along with Ian Duncan, have set up a website, Browse4Houses. It is Well worth a look before buying or selling your property. Go to: www.browse4houses.co.uk
