Friday, July 13, 2012
Funding for lending
Posted by David Smith at 01:45 PM
Category: Thoughts and responses

To what extent is the Funding for Lending (FLS) scheme genuinely intended to get more credit into the economy, and to what extent is it just a way of getting cheap funding to the banks? The surprise in the announcement is that the banks only have to maintain their lending to benefit from the cheap funding. And there is no guarantee that they will pass on lower funding costs to borrwers.

This is what the Bank says: "The Bank of England and HM Treasury are today announcing the launch of the Funding for Lending Scheme (FLS). The FLS is designed to boost lending to the real economy. Banks and building societies that increase lending to UK households and businesses will be able to borrow more in the FLS, and do so at lower cost than those that scale back lending.

"The introduction of the FLS occurs against the backdrop of a euro-area debt crisis which has revealed severe vulnerabilities in the European banking system and has led to a marked deterioration in the outlook for the UK economy over the past twelve months. In spite of the policy actions of the authorities, the flow of credit through the banking system which households and many businesses necessarily rely on has remained impaired. The FLS is designed to tackle this problem by reducing the price at which banks and building societies are able to fund themselves."

And here is its explanatory document.