The banks are not legally obliged to keep their reserves with the Bank of England. Were they so inclined, they could withdraw them to-morrow and accumulate stores of the precious metals of their own. It follows, therefore, that the best of feeling should exist between the "Old Lady" and Lombard Street. Obviously she is not now in a position to dictate her own terms, as her greatest power is derived from the "bankers' balances" on the left-hand side of her balance sheet. Perhaps it is now easier to understand that the Bank of England, when it from time to time states the lowest rate at which it will discount bills for outsiders, occupies the position of a most important lender, whose minimum rate, though not always the market rate, is seldom either greatly above or below those of its rivals. CHAPTER XI. The London Money Market. It is usual, when describing the Money Market, to assert that it consists of the numerous banks in the City of London; but it seems to me that, in reality, the money market extends throughout the United Kingdom, for wherever there is a bank or a branch bank there is a market for money. Moreover, the demand arising for loanable capital in the provinces largely influences the rates of interest ruling from time to time in London, because, if demand is brisk in the country, the banks have less to lend in London, consequently the rate advances there. When reference is made to the money market the London short loan fund is invariably meant, and we now have to consider how this fund is formed. The banks, which are liable to the public for huge sums of money at call and short notice, are obliged to keep a certain proportion of cash in their tills and strong rooms and with the Bank of England in order to be prepared for any sudden demand that may be made upon them. Their cash in hand is, of course, required to meet the ordinary demands of a banking business, and that deposited with the Bank of England is held as a reserve fund against those risks of withdrawal from which a credit institution owing immense sums at call is never free. Roughly speaking, a well-managed bank would keep, say, six per cent. of its public liabilities in legal tender on the premises, and a further ten to twelve per cent. at its credit in the books of the Bank of England. The latter accumulation might be called the bank's _real_ reserve, for it is upon this that it would have to rely during a run.