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Funding for Bank Lending

Bank lending to businesses is getting a lot of bad press, especially with SMEs who may not be getting the funding they need in order to grow, recover and boost the UK economy. However, this week the Bank of England governor Sir Mervyn King has pledged to provide cheaper short term cash to banks in order to incentivise business lending.

King and the Bank of England has recognised that the banks need access to lower cost sources of capital and more liquidity in order to limit their losses from the Eurozone crisis and allow them to lend more to UK businesses.

There will be a joint announcement from the Bank and the Treasury for a ‘funding for lending’ scheme in the next few weeks that will provide funds for the banks at lower rates that will allow them to lend more. However, this is only available to banks who will lend outside the financial sector – so hopefully more UK businesses will benefit.

The Bank of England will provide ‘whatever liquidity [the banks] require given the prospect of turbulence ahead.’ This programme will combine with further injections from the quantitative  easing programme.

Sir Mervyn King commented; “Before the crisis… some [banks] got by on faith and the hope that nothing would go wrong. When it did go wrong, they relied on the charity of taxpayers to survive. It is no longer acceptable for banks to rely on faith, hope and charity.”

“In present circumstances, banks face challenges of liquidity, funding and capital – and the greatest of these is capital. Difficulties in liquidity and funding are often a reflection of insufficient capital.”

Hopefully new measures such as this will help to reinvigorate the small business lending potential of the banks, helping more businesses get access to the funds that they so desperately need.




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