The Bank of England has unveiled details of two new schemes aimed at helping banks to increase their lending.
The Bank of England has announced two new stimulus schemes designed to get banks lending and the economy moving.
Speaking at last night’s Mansion House dinner, the bank’s Governor, Sir Mervyn King, outlined plans to provide banks with cheap credit.
Loans to boost lending
In an admission that the extensive quantitative easing programmes have not been successful, the Bank of England will now offer cheap loans to banks with one proviso – they must be used to increase the bank’s lending.
The biggest criticism of the quantitative easing programme had been that banks had used the cash generated to improve their balance sheet, rather than lend.
King said: “The Bank and the Treasury are working together on a ‘funding for lending’ scheme that would provide funding to banks for an extended period of several years, at rates below current market rates and linked to the performance of banks in sustaining or expanding their lending to the UK non-financial sector.”
The scheme will allow banks to effectively ‘swap’ certain assets they hold which they may not be able to shift – a mortgage book, for example – for money from the Bank of England. It’s understood this will lead to up to £80 billion in new loans.
Boosting liquidity
A second scheme will see the launch of the snappily-named Extended Collateral Term Repo Facility, which will be aimed at improving banks’ liquidity.
Banks will be offered six-month loans of at least £5 billion in monthly auctions.
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