London - Home to the World’s Banks

Tea and coffee have always formed an important part of financial life in the City of London, the Square Mile, as it’s often referred to.

The City of London

In fact, if it wasn’t for tea and other commodities, London would never have been a trading centre in the first place. And if it wasn’t for coffee, there probably would not be any banks or cheques! After all, it was in a coffee shop owned by a chap called Lloyd that one of our oldest and most revered banks was started. And it was on a chequered table cloth laid over the tables in that very coffee shop, that actual transactions were made. (Hence the term cheques).

And ultimately, cheques and money and banks are really what the City is all about. If you want to be a serious, world class banker, you’ve got to hang your name on a door in the City of London. That’s why there are so many foreign banks listed in the City. Add our own British banks and you can see how important London is.

London, A Numbers Game

They say over 300,000 people work in the financial industries of the City and more funds are invested in the City than in the next top ten cities of Europe - combined! More international calls are made to and from London than from anywhere else… on the planet!

To suggest that London’s banks are busy is quite an understatement. In any one day around $753 billion is traded through London: that’s around £376 billion a day. And for every dollar going through the banks, they take a small percentage or cut. Which is why banks are so rich, and why jobs in the City are something to aspire to.

London - Where Millions Are Made!

We’ve all heard about multi-million pound bonuses in the newspapers. Well, it’s real. People really do make millions and millions of pounds, mainly because they, in turn, have made hundreds of millions of pounds for their companies or banks. But what do City Banks actually do? We know that our high street banks take deposits for savings accounts and lend money to businesses and individuals. They pay savers interest on their deposits and charge a higher rate of interest to borrowers. The difference between the two rates of interest is their profit.

City banks perform the same function, although the numbers are invariably much greater. They also offer a variety of other services. They provide money to companies to finance their businesses; they handle foreign currency; they negotiate deals on behalf of their clients. They look after the billions of pounds which are traded each day on the stock exchanges, like the London Stock Exchange. For every transaction or service, the banks charge their customers a fee, or a commission, and sometimes both!

How to Buy a Bank!

City banks also trade in stocks, bonds and commodities for themselves, using their huge money resources to make even more profit. In fact, they are some of the biggest traders in the world.

And, quite often, the banks start buying each other. One such deal has been in the news recently and the amounts are astronomical. Barclays Bank and Royal Bank of Scotland are both competing to buy the huge Dutch bank ABN AMRO.

The Bank of England

Why do banks come to the City of London? Quite simply: it’s the heart of the financial world. Having started centuries ago as a trading centre mainly because of London’s great sea port, the City has grown as a centre not only for trading, but for banking because of it stability. And at the centre of it all - the Bank of England, the greatest bank of them all.

Glossary

City Bonus:

City bonuses are sums of money paid to executives, normally associated with being brokers, bankers, fund managers and traders of shares or commodities. The bonus is a special reward for doing extra well and earning more than expected for their companies. It’s paid on top of the normal salary. It’s a bit like getting cash in your Christmas card.

Deposit:

A deposit is a sum of your money usually paid into a bank. When you deposit money into a bank savings account you are giving the bank your money to look after. In return, they pay you interest.

Commission:

A commission is normally a payment made to someone when they sell something for another person or a company. For example, if you work at a shoe shop and sell a pair of shoes worth £20, you might be given a £2 commission for completing that sale.Commodities: A commodity is a basic raw material such as wheat, rice, sugar, coffee, copper or gold. The values of these are changing constantly and people make a lot of money by buying commodities when they’re cheaper, and selling them when they’re more expensive.