Funding for Lending scheme gains signatures of 13 banks and building societies
Banks and building societies have signed up to the Bank of England’s Funding for Lending scheme, designed to encourage lending to new and existing businesses and individuals.
The 13 institutions so far on board, which include, Barclays, Virgin Money, Lloyds Banking Group, Santander and Royal Bank of Scotland, account for around £1.2 trillion worth of lending and 73% of the market.
The scheme, which hopes to make funding more available to businesses and individuals otherwise denied finance, allows banks and building societies to borrow up to an initial 5% of their current lending total and a further 5% if their overall lending is increased.
Based on their current lending figures, the Bank of England could offer the institutions involved an initial fund worth £60bn, but it is hoped that the scheme will eventually be able to offer banks and building societies up to £80bn worth of below market rate loans.
Royal Bank of Scotland has already made £1bn of discounted loans, after launching the scheme in August and Paul Fisher, the Bank of England's executive director for markets, stated that a "significant number" of other banks and building societies were close to signing up.
Furthermore, Fisher hopes that banks and building societies will be encouraged to lend to higher risk firms, such as SMEs and start-ups. He said, “Some will respond by lending to firms that they would previously not, because they can now earn a return that compensates for the extra risk.”