Banks leave £13bn in cheap money from Term Funding Scheme on the table

Jasper Jolly
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The Bank of England provided the cheap loans to prompt more lending by UK banks (Source: Getty)

The final tally of cheap Bank of England (BoE) loans taken on by Britain’s banks is now in, with lenders leaving almost £13bn on the table.

Banks borrowed £127bn under the Term Funding Scheme (TFS), which closed yesterday, according to Bank of England data.

The scheme delivered a stream of almost interest-free loans to banks in an effort to aid the pass-through of interest rate cuts to the real economy.

Read more: Withdrawal of BoE's cheap money punchbowl to raise mortgage borrowing costs

BoE governor Mark Carney unveiled the scheme in the August after the Brexit vote, amid fears uncertainty could tip the economy into recession – and with only the possibility of a small 0.25 percentage point cut to already low interest rates.

The scheme proved popular with the banks, with the BoE twice having to ask chancellor Philip Hammond for an extension of the easy money. However, his November request for a limit of £140bn proved to be beyond the limits of lenders’ appetite.

Lloyds is likely to be the biggest borrower from the scheme; it borrowed almost £20bn up until the end of 2017, although the final totals from the TFS in 2018 will not be published until the end of the quarter.

Read more: Barclays and Lloyds in £10bn BoE borrowing boost

Lloyds’s tally was slightly ahead of Royal Bank of Scotland, which had borrowed £19bn when the last breakdown was published.

However, as a proportion of their balance sheets Metro Bank and Charter Court Financial Services were the biggest beneficiaries. Goodbody analyst John Cronin last week noted that Metro had used TFS drawings to invest in higher-yielding securities, in a “classic carry trade”.

The end of the scheme is expected to prompt a rise in borrowing costs for businesses and consumers, with some economists likening the effects to a standard rate hike in tightening the supply of money.

However, the banks will have four years to pay back the loans, meaning investors see little risk of problems down the line when the bills become due.

Read more: Carney fires big bazooka with massive Bank of England stimulus programme

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