The UK Financial System

In seeking to classify the different types of financial intermediary that operate in the UK a number of different approaches may be taken (see Table 2.1). First, one could classify intermediaries according to the nature of their liabilities. For example, a ‘bank’ could be defined as an institution whose liabilities perform a medium-of-exchange-and-payment function. According to this defintion ‘banking’ status would be conferred on the clearing banks, Northern Ireland banks, the Banking Department of the Bank of England, the National Girobank and Trustee Savings Banks. A second approach would be to classify according to the nature of the operations conducted — the so-called functional approach. According to this system the above list for ‘banks’ would need to be extended to include accepting houses, ‘secondary’1 banks and discount houses, a grouping which is close to the old ‘banking sector’ definition used in official statistics.2 The remaining institutions would make up the ‘non-bank financial intermediaries’ (NBFI) sector, which would comprise building societies, finance houses, insurance companies, pension funds, investment trusts, unit trusts and investment agencies. Further, the NBFIs could be split into deposit- and non-deposit-taking intermediaries (see Table 2.2).