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Law for Business

Knowhow - guidance - precedents

28 SEP 2012

Boost in funding for lending?


The Bank of England has revealed names of 13 banks and building societies taking part in the Funding for Lending Scheme (FLS) launched on 1 August. Under the scheme banks offer discounted loans to businesses and households designed to stimulate the economy. The banks that lend the most will have cheapest access to money.

Borrowing in the open markets has become more difficult and expensive due to the continuing financial crisis and fears of the eurozone's fate, and this cost has been passed on to business and mortgage customers. The FLS was launched as loan rates were expected to increase further and is an innovative scheme within the UK's direct control.

Lloyds Banking Group, Barclays, Royal Bank of Scotland, Santander and Virgin Money are among those involved, which together account for around 73% of all lending in the UK. HSBC is the only one of Britain's six largest banks not to sign up as it prefers to fund lending through customer deposits, but has not ruled out joining in the future.

Whilst it provides incentives to increase supply of credit, the funds borrowed to date totals £60bn, falling short of the goal of £80bn. Although borrowing rates have started to come down, the Bank of England warned it may not be able to prevent total lending from falling over the next 18 months because of ongoing global economic problems. Cheap money alone will not spark growth. The FLS has started to free up the mortgage market, but mainly benefiting those able to provide a hefty deposit. Similarly, in the corporate sector company loans can be secured but not by the companies that need them most, namely the start-ups and SMEs that drive the economy.

 Mishail Dusad


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