Bank of England to gives millions of pounds worth of credit to high street banks

High Street Banks are to receive billions of pounds of credit from The Bank of England in an attempt to boost mortgage and small business lending .The joint initiative with the Treasury has launched the ‘funding for lending scheme’ which is to provide funding for the banks at interest rates below market level. Funding is subject to improvements in lending levels for the non-financial sector throughout the UK.

Mervyn King, governor of the Bank of England, said the scheme could be running within weeks. Further details, such as amounts of money to be lent out and attached conditions are yet to be confirmed, however the figure could be about £80bn. Mr King was speaking at the Mansion House Banquet, an annual event for bankers and merchants.

Mr King blamed a lack of demand in the British economy and the Eurozone crisis for having an effect on bank funding costs, which have led to high borrowing rates. He went on to say that there were signs of a slowdown in countries such as China, India and Brazil.

John Walker, chairman of the FSB (Federation of Small Businesses), said that the devil would be in the detail, as with previous small business lending schemes. He said they would wait to see how the scheme would result in changing points of view about credit risk. He hopes to see more applications for loans accepted. He would like to see a reporting process put in place that shows that the cash is being loaned to small firms.

Mark Snee, managing director for Technoprint Leeds claims the initiative will not solve the need for demand in the economy. Anything thought of as discretionary spending has been hit badly and will not get better until the Eurozone crisis is resolved.