ABSTRACT
This chapter discusses the domestic banks, which is known as the London clearing banks. The clearing banks, also known as commercial banks, are profit-making institutions, drawing their revenue from the difference in rates which they pay for borrowed money and the return they obtain by lending or investing in financial securities of various kinds. Commercial banks form only a part of the monetary system, so that control of the banks may not mean control over the monetary system as a whole. If commercial banks wish to replenish cash, they will first of all recall some of the money at call and short notice from the discount houses. The commercial banks maintain an interest-rate structure geared to Bank Rate. The use of Bank Rate was for a long time considered as the proper means of controlling the banks. An increase was supposed to deter borrowing from the banks since their rates are tied to Bank Rate.
