The UK banking system: structure, regulation and effects of the 2007-09 financial crisis

Until the late 1990s discount houses were configured as a particular group of banks that operated in the short-term money markets in London. Originally, they were discounters of bills of exchange drawn under the acceptance credits issued by the banks. Then, they expanded their business by arranging to discount other obligations, such as Treasury bills, and they specialized in the placing of money on the short-term markets. In fact, the discount houses accepted deposits from the banks and the other financial institutions and they also invested money in marketable securities and in bonds issued by the government department, the local authority and business firms. The discount houses which operated in the City of London were also members of the London Market Association (Ellinger, Lomnicka and Hooley 2006).
Until the late 1990s discount houses were configured as a particular group of banks that operated in the short-term money markets in London. Originally, they were discounters of bills of exchange drawn under the acceptance credits issued by the banks. Then, they expanded their business by arranging to discount other obligations, such as Treasury bills, and they specialized in the placing of money on the short-term markets. In fact, the discount houses accepted deposits from the banks and the other financial institutions and they also invested money in marketable securities and in bonds issued by the government department, the local authority and business firms. The discount houses which operated in the City of London were also members of the London Market Association.
Today discount houses have disappeared. This happened because the Bank of England decided to sanction the use of gilt repos as an approved instrument for Open Market Operations, and to extend its list of approved counterparts. This meant that the discount houses no longer occupied a unique position in money market operations (Ellinger, Lomnicka and Hooley 2006).
The London Market Association, which in the past also represented the discount houses, now represents the interests of those banks and other financial institutions that operate in the sterling money market. The Bank of England, through daily operations in the money market, supplies the settlement banks operating in the wholesale clearing systems with funds that enable them to settle accounts at the end of each day. By pricing the interest rate for these operations, the Bank of England influences the general level of interest rates throughout the financial system. In these operations the Bank of England buys high quality assets in exchange for cash. The collaterals offered for Open Market Operations include Treasury bills, gilt-edged stock, eligible bank bills, and securities issued by the EU government and supranational institutions.