Member Article

13 lenders sign up to Funding for Lending

The Bank of England has released the names of 13 banks and building societies that have signed up for the Funding for Lending scheme.

Up to £80bn has been made available to banks at cheap rates through the scheme, as they are expected to pass savings onto borrowers.

Barclays, Virgin Money, and Leeds Building Society are among those signed up, and the BoE says these institutions account for around 73% of the stock lending to UK households and corporates.

In a speech to Richmond University, Chief executive of Markets at the BoE, Paul Fisher said it would probably take some time for the banks to draw from the scheme, in some cases stretching to the end of 2013.

Mr Fisher added: Since the scheme was announced we have seen widespread falls in
funding costs across different sources and an equally wide variety of lending rate reductions.

“The final benefit in terms of lower lending rates is uncertain: I can envisage strategies in which the degree of pass through ends up being less than 100% or greater than 100%. The key point is that if the cost of funds is reduced, the supply of credit expands and hence the quantity of lending should rise.

“So will the banks make more money as a result of the FLS? Well they should try to! The scheme depends on banks exploiting the opportunity to make more loans and more profitable loans because that is in everyone’s interest. If they don’t respond by lending more than they otherwise would have done, competition will probably mean that they make fewer profits because other firms will take their business.

“Shareholders should be urging management to take advantage of the opportunity. The fact that, by signing up, banks and building societies agree to the Bank of England publishing details of their usage of the scheme, means that pressure will be more intense.”

This was posted in Bdaily's Members' News section by Tom Keighley .