Funding for Lending bank scheme launched
This is a new scheme to prompt banks and other lenders to make more money available to businesses, and supersedes the £20bn. National Loan guarantee scheme which was launched only a few months ago .
I wonder how long this new scheme will last? Will it be any more effective ?
Under the Funding for Lending initiative, the Bank of England will lend money at below-market rates to the banks and then monitor their progress in lending the cash out as cheap loans to businesses.
Under the initiative, the banks will be able to exchange collateral, such as existing loans for pieces of paper known as Treasury bills, on which they will pay an interest rate of 0.25%.
They will then be able to use these bills as security with which to borrow cash cheaply on the wholesale markets, money they can then lend onto homes and firms.
The Bank of England and taxpayers will be protected from any losses made on the loans agreed by the banks, because the banks will have to provide collateral to the Bank of England of a higher value than the loans.
Labour’s shadow Treasury minister Chris Leslie said the winding down of the previous scheme was a blow to Chancellor George Osborne’s “dwindling credibility” and commented – .
“Despite promises from ministers, net lending to businesses has fallen in every month of this government,”
“And there are serious questions about whether the new Funding for Lending scheme will really see lending to businesses become cheaper and easier to access.”
The RBS group, announced that it would take advantage of the new scheme and will cut the interest charges on loans worth £2.5bn, which it expects to make available to small and medium sized businesses.The interest charge will be cut by an average of one percentage point, the bank said.
Let’s wait and see – I suspect the banks will adjust the interest rates so that they appear to be offering cheaper deals to SME’s but in reality nothing will change . The banks are hoarding cash rather than lending.