ABSTRACT
The London discount market consists of twelve major discount houses. The discount houses stand as an intermediary between the Bank of England and the commercial banks; funds required by the latter are channelled through the discount market rather than by the commercial banks borrowing directly from the Bank. The discount houses, as well as channelling finance to the government, provide finance to the private sector by discounting bills of exchange. They also act as jobbers in short-term government bonds. The discount houses were originally set up to discount commercial bills. Today Treasury bills form the major part of their business. The discount houses try to anticipate changes in Bank Rate, so that movements in the Treasury bill rate will normally anticipate a change in Bank Rate. The monetary authorities can also, reinforce their influence on the key Treasury bill rate by lending money to the discount houses above Bank Rate, or below Bank Rate in the reverse situation.
