Funding for Lending Scheme is extended

3rd December 2014

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The Bank of England and Treasury have announced a one-year extension to the Funding for Lending Scheme (FLS), which provides a cheap source of finance to banks that support small and medium-sized enterprises (SMEs).

The Government said that the extension will help to ensure that credit lines to this sector of the market remain open even in the event of stress in bank funding markets.

The FLS has helped to push down bank funding costs since its launch in mid-2012. Originally the scheme offered cheap finance to banks that increased their mortgage lending as well as to those that boosted funding to small businesses, however, in November 2013, it became purely focussed on SME lending as the home loans market had improved substantially.

The Monetary Policy Committee (MPC) has judged that there will be no material impact on the stance of monetary policy. The Financial Policy Committee welcomes these changes.

Mark Carney, Governor of the Bank of England said: “By providing a backstop for funding for banks, the FLS has supported access to credit across the economy during an exceptional period.

“As the banking system has been returned to health, the need for that backstop has been reduced.

“The Scheme is not permanent so, as access to credit has returned to the mortgage market and large corporations, the Scheme has been tapered appropriately. ”
George Osborne, Chancellor of the Exchequer said:  “The Government’s long term economic plan is working with the Funding for Lending Scheme playing a vital role in supporting the recovery.

“Now that credit conditions for households and large businesses have improved, it is right that we focus the scheme’s firepower on small businesses, which are the lifeblood of our economy. ”

The Government said the FLS extension will complement various other longer-term initiatives to improve the availability of credit to SMEs as they take root.

These include: the British Business Bank’s various programmes to make markets work better for SMEs; the joint Bank of England-ECB initiative to improve the functioning of the securitisation markets, including securitisation of SME loans; the Government’s proposals in the Small Business, Enterprise and Employment Bill to mandate greater sharing of SME credit information and to require banks to share details of SMEs which have been declined finance; the Bank of England’s consideration of widening access to credit data to support the provision of credit to SMEs through non-financial intermediary channels, such as trade credit; changes to the PRA’s regulatory approach to make it easier to set up new banks; and a reduction in capital requirements for SME lending under EU legislation.

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