But the Bank of England is a great bank of discount. Moreover, it pays a dividend like any other bank, and, as the bill-brokers are its rivals, it follows that it cannot afford to allow all the business to drift into their hands. When, therefore, the brokers’ rate (the market rate) is below its own, it either takes steps to make its own rate of discount, as the saying is, “effective,” or else it reduces its advertised rate of discount (the Bank rate). The Bank makes its rate representative or effective by selling Consols, and thereby reducing “bankers’ balances.” The banks in consequence have less to lend to the brokers, who are then bound to apply to the Bank of England, which compels them to discount their bills at its own terms, and the rate in the outside market, of course, advances. We can see, therefore, that though the Bank rate is sometimes either above or below the market rate, it is necessarily never out of touch with it for any very considerable length of time; so now, perhaps, it will be understood why the banks allow 1½ below Bank rate on deposit; and their reason for basing their rate for loans and advances upon the Bank of England’s advertised rate of discount will also be apparent. Of course, the demand for, and the supply of, loanable capital decides the rate of interest, and as demand and supply are never equal, the rate is always fluctuating, but we might just remember that our artificial banking system “influences” the rate from time to time. During periods of dull trade, when loanable capital accumulates in the hands of the banking companies, we should expect to see a low Bank rate, because, prices of commodities having fallen, people are less anxious to borrow, while fewer bills are on offer, and, the demand for those bills having increased proportionately, it follows that the holders can discount them at a cheap rate. But when business is brisk and the prices of commodities are rising, more bills are drawn, and as the fund with which they are discounted is not limitless, it follows that the increasing demand upon that fund sends up the rate. Bankers, consequently, who have also to meet the requirements of their current-account customers, are sometimes obliged to administer a salutary check to speculation by making the rate almost prohibitive in order to protect their reserves of cash, as if they then lent to all and sundry even Lombard Street would collapse.