The Bank of England has announced the start of the new Funding for Lending Scheme (FLS) designed to boost lending to households and businesses.The Bank of England has announced the start of the new Funding for Lending Scheme (FLS) designed to boost lending to households and businesses. The plan is to allow banks and building societies to borrow cheap money from the Bank of England for up to 4 years.
As security against that lending, banks will provide assets, such as business or mortgage loans, to the Bank of England. Banks will have strong incentives to boost lending, by lowering interest rates and increasing the availability of business loans and mortgages. The more that they lend, the more they can borrow from the Bank of England. Banks and building societies can initially borrow Treasury bills up to 5% of the amount they currently lend and they will be charged just 0.25% interest. If they decrease lending, the interest rate will increase by up to 1.5%.
The Bank of England will publish data on the usage of the FLS along with lending data from the participants on a quarterly basis. The British Bankers Association are positive about the scheme: "The UK''s lending market is very competitive " and with support through schemes like the FLS for even lower cost borrowing, now is a very good time for UK businesses and individuals to speak to a bank about their financing needs.
Trinity Financial provided comment to the BBC as it ran with the FLS scheme as the lead business story: http://www.bbc.co.uk/news/business-19068444
August 5, 2012