Funding for Lending Scheme

Here are details of the Bank of England's Funding for Lending Scheme (FfL) designed to kick start lending by commercial banks to the business and household sector. Will this scheme lead to help for small businesses desperately looking for loan finance to sustain an expansion in production and investment? Are banks the right vehicle for lending for mortages and business loans? Will new sources of business finance start to take root and flourish in this difficult lending climate?

Basic details of the scheme

1/ Each bank or building society will be able to access £1 of cheap funding for every £20 of outstanding loans to companies and

households it has on its books.

2/ Banks will receive this funding for a fee of 0.25 percentage points a year

3/ As an incentive to increase lending, any bank that increases its net lending will be allowed to access more cheap funding at that cost

4/ Banks that reduce their outstanding lending will have to pay more for the funding, up to 1.5 percentage points

5/ Banks and building societies will be able to borrow up to 5% of their stock of existing lending to the real economy, plus any net expansion of lending during a reference period (from end-June 2012 to end-December 2013).

More here: Funding for Lending Scheme aims to cut loan costs